Art is gauged by two entirely different and often mutually-exclusive vantage points. There is the subjective eye of the beholder that gauges beauty, and then there is the no less subjective eye of the market, the appraiser and/or the taxman.
Color me cynical? [Hey, I know these things, because Gretchen and I watch "The Antique Roadshow."]
In planning for your estate, your heirs can adopt the eye of the beholder ... but it is necessary for you to see through the eyes of the taxman.
Be sure to properly plan for your artworks and ensure that they are appropriately (if usefully) valued, as seen through the eyes of the taxman.
The issue of valuation is always the issue at stake when it comes to taxes – be it with regard to real property, stocks, or something as mercurial as an easement.
When it comes to art, however, there is both a special importance and a special irony. After all, art is only truly valuable when it is priceless, in one sense, but there is nothing truly priceless in the market.
Or at auction.
For considered perspective on these issues and even some practical advice click over to a recent article in Mondaq titled “Valuing Artwork For Federal Taxation Purposes: Income, Estate & Gift Tax Issues.”
As anyone with a sizeable art collection will quickly understand, the value placed on a piece of art is, in the first instance, entirely based on the market’s whim and, in the second instance, every valuation is both a blessing and a curse.
A high valuation leads to high prices for sale and, just as important, a high deduction when donated to charity. A low valuation, on the other hand, can make a piece of art cut that much less against estate and/or gift taxes.
It is really hard to say which value you will want or when, and that is a dynamic to which the IRS is well attuned. Accordingly, when it comes to finally pegging a value, it is essential to have a reasonable valuation of the “fair market value.”
Admittedly, it is a tricky topic and after reading the original article you will agree that it is more than a good idea to review your own collection and plans.
So, what about your art collection? Will it pass the taxman’s tests or will it be a flaw in the estate plan?
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Mondaq (June 3, 2014) “Valuing Artwork For Federal Taxation Purposes: Income, Estate & Gift Tax Issues”