Financial planning for collectors can involve certain techniques for transferring ownership of art without transferring the art itself. For example, collectors can sell art to heirs for cash or a promise to pay-or place it in a trust or similar entity like a corporation-then lease it back. These strategies can have tax advantages, but are based on the laws of the state and country. Experts say that without the leasing agreement, these types of arrangements may not survive scrutiny by the tax authorities.

Trusts or corporations can also help collectors and their heirs avoid what the article calls “tragically bad luck” as many tax codes say that the property is subject to estate tax wherever it is situated when the owner dies. So if an asset is located in the U.S. but you’re not a U.S. taxpayer, when you die it will be subject to U.S. estate tax because it’s physically here. Good planning can avoid such a result.

Collectors wanting to donate to a charity and get a tax break while maintaining ownership of a piece of art (at least for a while) may be able to lend the work to an institution or remain a part-owner and donate the rest. Under American law, a collector can allow the institution to use the artwork for part of each year and take a prorated charitable deduction based on its value. However, the collector has to give away the artwork entirely within 10 years or at death, whichever comes first. The tax deduction is based on the value then or when the fractional interest was donated, whichever is lower. And penalties are due if deductions are found to have been excessive.

Talk to your estate planning attorney if you have some Picassos or Monets that you plan to give to your children. He or she will be able to work through the details and make sure it’s done legally and with the least amount of tax impact.

Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.
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