Kansas and Missouri Estate Planning

How Should I Plan for Valuable Collections in My Estate Planning?

Do not forget your collections in your estate plan.

Collecting is a passion for you.

Through it, you have come to possess a few treasures.

Whether these are intrinsically valuable or their worth is from personal sentiment, your collectables should be included in your estate plan.

According to a recent Forbes article titled “Astute Estate Planning For Art, Antiques And Valuable Collectibles,” personal property is approached differently than financial accounts and assets in estate planning.

How so?

Records.

Unlike a bank account, physical items can be misplaced or “lost.”

To avoid this, you should keep an inventory of your items as well as documentation of appraisals, receipts, and provenance records.

Disbursement.

It is easier for people to steal personal property.

In fact, when someone passes away such items seem to sprout legs and vamoose on their own to the back of an awaiting pickup truck or van! 

For accountability, your executor and heirs should all have a complete inventory.

You should also include instructions regarding who is to receive various individual items or collections.

It may be wise to include photos, identifying descriptions, and serial numbers of them.

Security.

As previously mentioned theft is a real threat.

Home safes, safe deposit boxes, and alarms systems help protect assets.

Make sure your executor and trustee know the codes to access the safe places.

When it comes to safety deposit boxes, make sure your executor and trustee may access the contents when needed.

Accordingly, they will need to sign signature cards now to access the contents later.

Do this without delay.

Insurance is essential to protect your investment in your collectibles.

Documentation.

Be sure to have proof of authenticity of the item.

Keep detailed records of bills of sale, condition reports, photographs, artists’ notes, appraisals, and insurance reports.

This will be beneficial to protecting the history of the item for future generations.

Valuation.

The value of an item can change from time to time.

You may need to include a specialist to speak into the current fair price of the item.

Estate Tax Issues.

These assets are included in your estate and will need to be properly identified, appraised, and included on your estate tax return.

Collectibles can be easily overlooked in this process.

Take the time to specifically plan for these special items.

Reference: Forbes (April 8, 2019) “Astute Estate Planning For Art, Antiques And Valuable Collectibles”

Are there Always Tax Breaks for Art Donations?

Not all donations will qualify for tax breaks.

Are you considering donating art to receive a tax break?

You should know the how the donation may impact the tax break as much as the donation itself.

Yes, you can push the system too far.

When it comes to tax law, pigs live and hogs get slaughtered.

Best to stay piggish.

According to the New York Times article titled "Canada Debates Whether Gift of Leibovitz Photos Is Also a Tax Dodge," a wealthy Canadian is in the midst of such as situation.

What happened?

Famous photographer Annie Leibovitz was in financial trouble.

Someone arranged for the sale of 2,000 prints from Leibovitz to a wealth Canadian.

The Canadian would purchase the art for $4.75 million then donate the prints to a museum in Nova Scotia.

It seemed like a win-win.

The artist would get out of financial trouble and the wealthy donor would receive a tax break.

What was the issue?

The issue is the paintings would qualify the donor for a $20 million tax break.

This number is quadruple what he paid for the prints.

The result?

Regulators have rejected the application for the tax break from the museum on three separate occasions.

The museum is now on its fourth application.

Could this happen to you?

Not necessarily.

Rules in the United States are different than those governing Canada.

Still, a method like this could be heavily scrutinized.

The IRS keeps an eye out for hogs when it comes to tax deductions.

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), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: New York Times (July 25, 2017) "Canada Debates Whether Gift of Leibovitz Photos Is Also a Tax Dodge."

How Can I Offset Capital Gains Tax on the Sell of Art?

Depending on the sale, you will likely owe money.

Did you inherit a piece of art?

Did this artwork increase in value from the date you inherited it?

Are you going to sell it?

If so, you could owe a pretty hefty capital gains tax.

You are not alone.

According to a recent Bloomberg article titled “Trust Planning Key To Recent $85 Million Basquiat Legacy,” Lise Wilks will come face-to-face with this reality.

Wilks inherited a Basquiat painting from her parents, who both died in 2009.

They had purchased the painting more than three decades ago for $19,000.

She sold it for $85 million.

With the commission to the seller, the purchase totals $110.5 million.

This set a record for the highest selling Basquiat.

It also proved to be quite a significant gain.

How much could she owe?

She may owe about $37 million.

Wow.

How was this calculated?

The federal capital gains tax is 28 percent on collectibles.

There is also a 3.8 percent levy on investment income for top earners.

Finally, the State of New York added another 12 percent tax.

It should be noted this is not the concrete final number.

The cost basis is specifically determined by a few factors—the value of the work in the year her parents died (2009) and whether it was gift or passed through their estate.

What steps can you take to decrease the taxes on a sale of art?

Deferring capital gains taxes.

If you are an art collector, you can defer the tax.

How?

Using a Section 1031 exchange.

You would use the capital gains to purchase more art.

You will need provide documentation to confirm that you are an "investor" in artwork.

Make donations.

You can make a donation during the year of the sale to offset capital gains.

This can also be carried forward from prior years.

You can donate art to a museum, or you could donate money to a charity.

If art, your deduction is calculated based on the appraised value.

If cash, you can donate to public charities to offset up to half of your income.

For some private foundations, the limit is 30 percent or less—depending on your income.

It appears philanthropy is a tool used by Wilk with her foundation reporting $3.5 million in assets and distributions of $301,650 in grants and gifts as of July 2015.

Reference: Bloomberg (June 12, 2017) “Trust Planning Key To Recent $85 Million Basquiat Legacy”

Why is the Bellagio in a Court Battle over the Estate of an Art Dealer?

Family feuds can affect more than blood relatives.

No one likes being caught in the middle of an argument.

Unfortunately for the MGM Grand—the owner of the Bellagio casino in Las Vegas—they are.

According to a recent Trust Advisor article titled “Pierre-Auguste Renoir Masterpiece At Center Of Bitter Estate Feud,” the Bellagio is involved in a dispute over the Pierre-Auguste Renior painting “La Balayeuse”.

Why?

The Bellagio recently sold the painting for $1.085 million.

The Bellagio was unable to receive the payment, however.

The reason?

The sons of art dealer Sam Salz claim the painting belongs to the estate of their father.

How did it get to the Bellagio then?

In 1999, the widow of Sam Salz sold the painting to Steve Wynn who founded the Bellagio.

Wynn then put the painting on display.

The two sons claim she had no right to sell the piece in the first place.

They also claim she had been scheming to secretly sell the painting without the knowledge of the two sons.

The widow died in 2015, but the sons have been continuing to battle her estate.

Their demand?

The sons say the $1.085 million belongs rightfully to the estate of their father rather than the Casino.

No ruling has been made in favor of either party.

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), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Trust Advisor (April 10, 2017) “Pierre-Auguste Renoir Masterpiece At Center Of Bitter Estate Feud”

How Should I Handle Artwork in My Estate Plan?

Art is a unique asset class. [Understatement]

Since its value is in the eye of the beholder, valuing art is an art in and of itself.

Things can really get tricky, however, when gifting and planning an estate with artworks.

Enter The New York Times and its recentarticle titled “Estate Planning Can Get Tricky When Art Is Concerned.”

As you would expect from The Times in matters of art and culture, the article adroitly addresses this subject, noting that there are specialist advisers who serve the art world and its unique estate planning issues, to include those related to tax, legal concerns and philanthropy.

I guess you could say the art expertise of these specialists is really “a niche within that niche,” since they fulfill a different role from art advisers who help clients find works of specific artists based on their tastes, budget, and the state of the market. 

Interestingly, the fact that art is so very difficult to value can work to the benefit of art investors.

 

If you are selling, then you want the value to be high. On the other hand, if the art is being included in your estate at death, then you want that value to be low.

Either way, it is essential that you engage an independent appraiser because the IRS has its own appraisers! 

Another benefit of a bona fide appraisal is when you gift art to loved ones. This helps establish the tax basis should they ever part with (sell) your velvet Elvis collection (just kidding). If you cannot establish basis, then it is zero.

Not good.

The original article also delves into some finer points of making your art work for you.

For example, financial planning for art collectors can involve certain techniques for transferring ownership of art without transferring the art itself.

These techniques include selling art to heirs for cash or a note, placing it in trust or even a corporation ... then leasing it back.

If you go down those rather complex roads, make sure you are working with an attorney experienced in these matters.

Why?

Because there may be tax advantages to be sure, but results may vary based on governing state and national law. I understand the whole program may not survive the tax man without the attending leasing agreement. 

Trusts or corporations can also help collectors and their heirs avoid what the article calls tragically bad luck defined as dying in a location with a particularly onerous estate tax. 

What if your art is located in the U.S., but you are not a U.S. taxpayer?

At your death, your art will be subject to U.S. estate taxation because it is physically here.

Ouch!

Good news: Good planning can avoid such a bad result. 

What about philanthropic art collectors?

In the best of all worlds they would like to donate their artwork to a charity, get a tax break and maintain ownership of the artwork. Actually, they can get kinda close.

An example cited in the original article notes that under American law a collector can allow the institution to use the work for part of each year and take a prorated charitable deduction based on its value. However, the collector has to give up all ownership and control of the artwork within 10 years or at death, whichever comes first. 

As you can see, whether it is matters of the heart or your velvet Elvis art, engage an experienced estate planning attorney early in the process.

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), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there. 

Reference: The New York Times (October 3, 2015) “Estate Planning Can Get Tricky When Art Is Concerned”

How to Plan for Artwork in an Estate

It is said that beauty is in the eye of the beholder. But what if that beauty is captured in the form of artwork? Even more to the point, how do you decide ownership when the artwork is part of an estate?

Very carefully. Very carefully.

A recent Wall Street Journal article, titled "Tips for Dividing Art in a Divorce or Death," warns that fighting can be avoided if art lovers and their loved ones learn a little bit about legal and tax basics.

The original article offers some ideas on how to decide—in a fair and civilized manner—who gets what, and the various option for disbursing an art collection to minimize taxes.

First, after an art collector dies—before anyone starts eyeing their walls for a new masterpiece—the entire estate must be finalized in probate court. This does does not happen overnight (and may take several years). If the art is in the home of the decedent and that home is not occupied, be sure to upgrade the security system or consider transferring the art to a climate-controlled fine-art storage facility.

Note: None of the art should be removed before the court-approved distribution, and the decisions about the art should be part of the overall estate planning. Remember, while art passing at death is subject to a step-up in value for tax purposes, all artwork will need to be appraised professionally.

Even if an art collector specifies who gets what, there still may be problems. For instance, if a collector wills a painting to one person and gives everything else to another, the second individual will be responsible for paying the estate tax for the painting if taxes are to be paid out of the "residue". Alternatively, the original article suggests that the will should specify that each heir pay his or her share of taxes on the assets received.

For a person who dies in the current year (2014) there is a federal estate tax threshold of $5.34 million, so an estate worth less than that has no federal estate tax liability. However, the original article reminds us that you only need one Picasso or Warhol to put you over that line and make your estate taxable. This tax could be as much as 40%! To make matters worse, some states also tax up to 20% above a $1 million threshold.

The original article also describes how collectors will sometimes sell art to help defray anticipated estate taxes. Alternatively, you should read the original article and talk to your estate planning attorney about setting up a tax-exempt charitable trust and gift artwork into the same.

If there is a Degas in your dining room or maybe a Dali in your den, speak to an experienced estate planning attorney about a strategy to pass your collection to your family in the most prudent manner.

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: Wall Street Journal (Sept. 21, 2014) "Tips for Dividing Art in a Divorce or Death"

Treasure, Trash And The IRS

Estates with precious artworks or age-old antiques face a central paradox: the more priceless an object is, the more important it is to put a price to it. This is the paradox of valuation for tax purposes.

It gets all the more tricky with antiques composed of protected materials, especially ivory, which cannot legally be sold.

How do you value a priceless yet worthless object?

The problem of valuation is not a new one, but it has taken some serious turns as of late and there is a helpful guide to the whole ordeal over in a recent WealthManagement article titled “Zero Fair Market Value for Antiques?”

Regular readers will already know a good deal about the issues and the recent tax court decision in the Sonnabend case. Quickly stated: in that matter, the Sonnabend estate offered a $0.00 valuation for a famous painting.

Its rationale?

The painting could not have a “fair-market value” since it also could not be sold under U.S. law. The piece was Raushenberg’s “Canyon” and “painting” is a loose term for this mixed media artwork. Problem: It included the remains of a bald eagle, which are protected under various laws and forbidden from sale.

The IRS said no dice after an odd analysis involving the possibility of illegal or foreign markets offering a price for fair market analysis. In sum: regulations forbidding the sale of items within an antique or piece of art do not mean that the tax based on “fair market value” will not be upheld.

Now to ivory. As the original article elaborates, elephant ivory has long been an issue in valuation for estates and taxation purposes. There have been certain workarounds and a notable exemption in the case of antiques. Nevertheless, it looks like the exemption has seen its last days.

The Fish and Wildlife Service issued “Questions and Answers about Director’s Order 210” which states:

Under a special rule that has not yet been revoked, items made from African elephant ivory can still be sold across State lines and exported whether they qualify for the ESA [Endangered Species Act] antiques exception or not. We are working on the regulatory action needed to change this regulation.

As new regulations have yet to be published it is hard to say what the legal circumstances facing estates and family heirlooms may yet be. On the other hand, it is clear that it will become all the more difficult. According to the sources, the market for ivory antiques has already frozen in indecision.

Do you and your family own special antiques and how do you plan for them?

Specific plans must be made for items containing ivory and other substances. In the end, it might simply be illegal and/or impossible to pass them down. These new regulations may be forthcoming, but the issue is one to address sooner rather than later so as to safeguard what you can.

Now is the time to devise a strategy to keep those precious family heirlooms or ensure the highest value for the unique antique collection.

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: WealthManagement (June 19, 2014) “Zero Fair Market Value for Antiques?”

Art Valuations – In The Eye Of The Beholder?

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”