SELL NOW OR PASS ON
The issue of how to deal with the collection of fine art that you amassed over the years should be dealt with now rather than allowing your heirs decide for you. Perhaps your heirs do not have any appreciation for your original Ansel Adams or Edward Curtis photo collections. If you view it as an investment, then timing your sale to maximize profit should be the most important criteria. Timing may not be right for several years or it may be right now. If you are looking to maximize profit which will only go to to your estate, you may consider waiting to pass it on. If, you happen to value your art collection because of its intrinsic artistic value, you have another set of criteria by which to make your decision. Perhaps you have a family member you know would appreciate it more than say your son or daughter. Perhaps you should sell it to insure that the artistic value continues to be appreciated. Country Living spotlighted an artistic marble collector who decided to sell his collection to insure that it would continue to be appreciated. In any event, Capital gains tax on collectibles, gift tax and estate tax, both state and federal, must all be considered.
ESTATE TAX
The top 2015 federal estate tax rate is 40 percent, while the federal estate exemption is 5.43 million dollars. That means that you can pass just under 5.43 million dollars to your heirs without incurring any federal estate liability. In 2014 the New York legislature passed a bill which changed the state estate tax to mirror the federal tax exemption, but with a variable tax rate, depending on the size of the estate.
CAPITAL GAINS TAX
The current capital gains rate for collectibles is 28 percent. If the art is an investment, this is obviously a better tax rate than the 40 percent required if it is included in an estate. But the discussion does not end there. If you intend on passing that cash on in your estate, depending on the amount, it may be double taxed. If you gift the cash to someone, you also may be double taxed. In 2015, you can gift up to 14,000 dollars per year without any gift tax liability with a lifetime maximum of 5.34 million dollars. If you gift away more than 14,000 dollars, it is included against your estate tax exemptions.
WHAT TO DO NOW – CHECKLIST
- As noted above, the first thing you need to decide is how do you want to deal with the art itself. Is it an investment or something more?
- If you are passing on certain items, they may be subject to further documentation. Not surprisingly items of military historical value, such as historical guns are all subject to numerous state and federal laws. It is best to gain a basic understanding of that those laws are.
- Get appraisals of your works of art. Three different groups to contact aht may be able to help are:
WAYS TO AVOID FUTURE PROBLEMS
There are no numerous ways to avoid the issues that are involved in estate planning. You can create a trustee, with a trusted friend or family member as the appointed trustee. You can create a corporation with only a limited group of people able to own the stock. You can create the rules of that corporation, that decides in advance who gets to sell, under what circumstances they can sell their stock. You can decide what and when certain items are sold.
Whatever your decision, it will require legal counsel to guide your decision every step of the way. Only an experienced
estate planning attorney should be considered for these decisions.