For many people, collecting artwork can be both a passion and a profitable investment. Pieces may be bought, sold, or put on display, occupying a prized position in a cherished home.
However, guaranteeing the longevity of a collection is rarely an easy undertaking. Without the right estate plan, artwork could create unexpected problems. Heirs, for instance, could find their inheritance beleaguered by appraisal delays and high tax rates, which can complicate any effort to resolve an estate quickly.
The Alatsas Law Firm can help you or a loved one overcome uncertainty. We have spent decades helping New Yorkers cement their legacies through the use of time-tested strategies and innovative solutions, and we can help you, too.
Estate Planning and Artwork
Accounting for an art collection in an estate plan can be challenging. Since many collectors are motivated more by passion and personal interest than potential profit, the necessity of cataloging and appraising an individual collection is often overlooked.
Any oversight, no matter how minor, could have far-reaching consequences. In many cases, simply determining the value of an item—a painting, a sculpture, or something more abstract—can frustrate heirs and executors alike. They may be forced to hire a professional assessor, or, occasionally, schedule a consultation with the Internal Revenue Service’s Art Advisory Panel.
However, you do not have to accept uncertainty in place of decisive action. You could prepare for succession by:
Writing a Will
Writing a will is the only way to ensure that your estate assets are not subjected to the rigors of an intestate succession—the process of distributing inheritances in the absence of a will, trust, or other apparent estate plan. In an intestate succession, the court is bound by strict rules—rules that will not consider your heirs’ sentiments or your intent in amassing a collection.
Cataloging Your Collection
Art collections can be extensive, to the point where it can be difficult for heirs and executors to obtain the information needed to initiate probate. If you own numerous items, you may need to begin cataloging them. Each entry should include information such as:
- The approximate date of purchase
- The name of the artist
- Receipts, invoices, and other documentation of ownership
Providing proof of ownership is especially important, whether you plan to sell your artwork, bequeath it, or give it to a museum or other charity.
Assessing Your Need for an Art Executor
Every estate should have an executor—the individual tasked with initiating and overseeing probate. However, if an estate includes valuable artwork, the testator should consider designating a dedicated art executor.
An art executor does not necessarily have to have the capacity to administer the estate’s general affairs, but they must understand the art market and have the resources needed to preserve vulnerable pieces and seek impartial appraisals. Ideally, they should not be a party to estate administration, nor should they have any stake in its outcome.
Your Estate Planning Options for an Art Collection
After establishing the foundations of an estate plan—writing a will, nominating an executor, and perhaps funding a trust—you should begin assessing how your collection will be preserved or distributed upon your death. The three most common methods for art collection-related bequeathals include:
Selling the Collection to Provide a Material Inheritance
If your heirs do not appear interested in maintaining your collection, your best option could be its liquidation. However, selling an art collection could trigger high capital gains taxes, which can exceed 28% on artwork.
Conversely, if your collection is sold during estate administration, the proceeds will be included with your estate. This could increase the taxable value of your estate—a serious concern if it is near the threshold for the federal estate tax—but provide your heirs with a “step up,” requiring that they only pay capital gains tax on the appreciated value of the artwork.
Leaving the Collection to Heirs
You could leave your collection outright to a single heir or transfer the collection—in part or in whole—to a revocable living trust or limited liability company (LLC). After your death, the collection would be placed in the custody of a successor trustee or manager, who will be legally responsible for administering the collection in accordance with the terms you set for its use.
If, at any point, artwork is sold, the proceeds may distributed equally among trust beneficiaries or LLC shareholders.
Donating the Collection to a Museum or Charity
You could also donate your artwork to charity while you are still alive. By donating your collection, you will be able to condition its future use while also receiving a sizable tax deduction.
If you donate your collection through a will or other estate planning tool, your estate will receive a comparable deduction.