Estate Planning Concerns and Strategies for Florida Art Collectors
Any art collection that’s been years in the making is a collection that would very likely be missed by its owner’s heirs. However, protecting artwork for later generations can be much more difficult for individuals than it is for museums and galleries. Read more to learn about accounting for artwork in your Florida estate plan, or contact DeLoach, Hofstra & Cavonis, PA, today to speak to a Seminole estate planning lawyer and schedule your initial consultation.
Accounting for Artwork in Your Florida Estate Plan
Although accounting for artwork in your last will and testament could seem a simple matter, ensuring that your friends and family members receive their inheritances without complication is often easier said than done.
Here’s what you need to know before writing an art collection into your estate plan:
Valuation Issues Are Common
You may not be able to put a price tag on a prized portrait or masterpiece painting, but the Internal Revenue Service certainly can. If you’re planning to transfer artwork through the provisions of your estate plan, you may be required to obtain an assessment if: simple
- Your estate is planning to sell or auction artwork
- Your estate is near, at, or over the federal estate tax threshold
- Your estate plan includes a directive to donate artwork for the purpose of reducing your estate’s taxable value
- You’re planning to use all or part of your gift tax exemption to transfer artwork to an heir
The Internal Revenue Service typically requires that artworks be professionally appraised if their claimed value exceeds a set amount. This amount is dependent on whether the artwork is being donated, sold, or given as a gift to a friend or family member.
Transferring Art Collections Could Trigger Tax Liabilities
You may not think twice about transferring all or part of an art collection to a living heir, but lifetime gifts can cause problems if they aren’t properly recorded (or reported).
The Internal Revenue Service has a much broader definition of the term “gift” than most ordinary people. The gift tax is thereby applicable to the transfer of any type of property when the gift’s recipient either receives nothing in return or pays less than the gift’s current and fair value.
3 Strategies to Protect and Preserve Your Art Collection
Since artwork is subject to stringent regulation if transferred to heirs through probate or lifetime gifting, collectors must often think ahead to anticipate and overcome obstacles before they arise.
Common estate planning strategies for art collections include:
1. Establishing a Limited Liability Company
A limited liability company, or LLC, can provide several distinct advantages when it comes to holding and managing an art collection. The structure of an LLC can, for instance, ensure that any decisions about the artwork and its use remain centralized.
Similarly, the manager of the company can help beneficiaries by:
- Ensuring that each heir receives a reasonable level of access to the collection’s items
- Distributing shares in the company to family members, who can jointly benefit from the sale or use of the company’s art assets
- Coordinating essential services such as storage, maintenance, restoration, and purchase of an appropriate insurance policy
Married couples can also use LLCs to provide a lifetime inheritance for their heirs.
Instead of making a one-time transfer, parents can gradually transfer ownership shares to their minor or adult children. This can typically be done without incurring a gift tax, providing that the transfer of shares does not exceed the couple’s annual exclusion amount.
2. Funding a Trust
A trust can be used to hold and manage artwork on behalf of your beneficiaries.
In Florida, trusts can be separated into two broad categories:
- A revocable trust is a trust that can be altered or changed at any time after its formation. You retain control over the assets in a revocable trust for as long as you are alive. Upon your death, the trust makes distributions to its beneficiaries in accordance with any conditions you have set.
- An irrevocable trust is a trust that cannot be altered or revoked after its establishment. You cede some control over trust assets, but benefit by enforcing a firm separation between your personal assets and your trust assets. This has the effect of insulating trust-controlled assets from creditor claims. It can also reduce an estate’s taxable value.
Trusts can benefit collectors, and their heirs, in many different ways.
All trust-controlled assets, whether held by a revocable trust or an irrevocable trust, are exempt from probate. This lowers the risk of artwork being the subject of probate contests while also making it substantially easier for heirs to receive high-value items.
3. Donating Part of Your Collection to Charity Could Have Big Rewards
Donating art to charity has rewards that go beyond establishing a generous legacy.
If you’ve owned your artwork for more than a year, donating it could:
- Claim current-year tax deductions
- Eliminate or reduce capitals gains taxes
- Reduce or eliminate your estate tax liability
Even if you don’t wish to donate the entirety of your collection, strategically gifting a limited number of pieces to the charity of your choice could make other aspects of succession easier.
