#THE COMPLICATED ART OF DEDUCTION FULL#
For example, you may use your annual gift tax exclusion ($16,0) or the more generous lifetime exclusion ($12,060,000 in 2022) to gift full or fractional ownership interests in works of art to your heirs.
Gifts to noncharitable beneficiaries. Most gifting options available to individuals during life for traditional assets are also available to collectors for gifts of artwork. The bottom line is that art collectibles are very expensive to sell - during life or at death - compared with other assets. Further, disposing of a collection at death often connotes a fire sale and could lower its perceived value at auction. The tradeoff is that the entire value is included in the estate for estate tax purposes. Selling at death is perhaps less expensive from an income tax standpoint, as the tax basis of the art collection is increased to fair market value at death, reducing (or perhaps eliminating) capital gains tax for a subsequent sale by the estate or heirs. And we can add to that other costs- sales commissions, insurance and shipping costs, and sales tax - which are not common with most other assets. This is because of higher long-term capital gains tax rates (28% compared to the current top rate of 20%) associated with artwork and other collectibles. However, you should be aware that it’s more expensive to sell art (and other collectibles) than many other assets. Selling your collection may be the right choice for you. Donate it to a charitable beneficiary, such as a museumĪnd there are two different times when these options take effect- during life or at death.Give it to a noncharitable beneficiary, such as your children or other heirs.Collectors should be aware that they have three basic options with respect to their collection: Exploring these options in advance might be painful, but it’s necessary to begin the planning process.Īfter the children or other heirs’ interest, if any, is determined, the planning process can begin. Another possibility is that they’ll be divided over what to do with the art, with one keen to keep a piece and another eager to sell. If by chance they are interested, you must determine more precisely what’s more relevant to them - the $10 million painting or the very different $10 million value of the painting-which will help determine the outcome. Quite often, they don’t share your passion for your collection in particular, or maybe even art in general. While this non-planning approach is always an option, it’s the most expensive in terms of administration and the least desirable in terms of directing the disposition of the collection.įor those who want to affirmatively plan, the first step is to ascertain whether your children or other heirs are interested in your art collection.
Either way, it’s possible that the collection will be sold at death. This means that the collection is likely to end up in the hands of an executor without adequate direction or distributed to family members who may not share your passion for art. The default choice for many collectors is to do nothing in terms of estate planning for their collection. However, the very personal connection to art, and the fact that art cannot be sold as quickly as financial assets, makes it essential to diligently plan ahead. As a result, many collectors find it extremely difficult to make planning decisions about the ultimate disposition of their art. Art is often less about numbers and more about heartstrings and passion. Estate planning with art can be a much more emotional process compared with traditional financial assets. A collection reflects who you are and how you’ve lived. Unlike financial assets or real estate, art is intensely personal. While the foundation of collecting is participating in this “dialogue” and enjoying the beauty that art affords, extensive art holdings should also be considered when addressing personal finances and estate planning.Īfter investing time, effort and financial resources to establish an art collection, many collectors find it difficult to consider its future and final disposition. This often leads to, or results from, an interest in a particular artist, period or medium, and the cultivation of relationships with artists, auction houses and galleries. Our wealth strategists can help you navigate various financial and estate planning issues for the potential benefits your collection may provide.Īs an art collector, you’ve invested time, energy and resources in developing expertise in art and built a collection that fits your aesthetic criteria and interests. Bank of America Private Bank’s Art Services group has special expertise in this area. Whether selling, giving or donating it, early planning is critical to helping ensure that your goals are fulfilled. It’s important to determine what you’d like to see happen to your collection when you’re gone.
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