Three Estate Planning Options for Your Art Collection

POSTED ON: July 13, 2022

If you have valuable artwork, your decision on how to leave your artwork can generally be broken down into one of (or a combination of) three options, preferably with a view of keeping in mind the estate and income tax consequences of your plan during life and after death.

Three Estate Planning Options for Your Art Collection

Collecting art or other valuable items can be a passion for many people. Often such a pastime is more about enjoying the art or the medium itself than about ensuring financial gain. However, once you have accumulated a sizable collection, what do you want to happen to it after you pass away?

It is important that your estate plan address your art separately from your other assets.

The first step in estate planning for your collection is to document it. You should not only have the collection appraised, but also take photographs of each item and assemble any paperwork relating to the authenticity and origin of the pieces in your collection, including artist notes, bills of sale, or insurance policies.

According to an article by Bank of America entitled “Your Art Collection and Legacy Planning”, they give you three main options when considering what to do with your art collection:

  • Sell the collection. If your family is not interested in maintaining your collection after you are gone, then you may want to sell it.

If you sell the collection while you are alive, you will have to pay capital gains taxes on the collection’s increase in value since you purchased it. The capital gains tax rate on artwork is 28 percent, compared with the top rate of 20 percent for other assets.

If the collection is sold after you die, however, it will be included in your estate, possibly increasing the value of your estate for estate tax purposes, but it will be “stepped up” in value. In other words, the increased value for income tax purposes likely will not subject to artwork to income taxes.  This means that if your heirs sell the collection, they will have to pay capital gains tax only on the amount by which the pieces have increased in value from the date of your death to the date of sale.

  • Leave the collection to your heirs. You can give your artwork to individual family members, but a better approach may be to put the artwork in a trust or a Limited Liability Company (LLC).  The trustee of the trust or manager of the LLC whom you appoint will be responsible for sustaining the collection, including maintaining insurance on the artwork, arranging storage, and making decisions about selling and buying pieces. You can leave instructions for care and handling of the collection. Any profits from the sale of items would be split among the beneficiaries of the trust or members of the LLC.
  • Donate the collection. You can donate your artwork while you are still alive and receive an income tax deduction based on the value of the items. This can be a good way to pass on your collection while avoiding capital gains taxes, and in addition, generating a charitable deduction for income tax purposes during your life.  Should you choose to donate through your estate after your death, your estate will receive an estate tax deduction based on the collection’s value, but there likely will be little income tax benefits (due to the step up in basis of the artwork).

Deciding which option to take will depend on your circumstances, your current and future income tax and estate tax position, as well as your family’s interest in the collection. Talk to your attorney to figure out the best option for you.

BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.

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