New York Estate Planning & Elder Law Blog
Art pieces and collectibles can often be difficult to price. After all, the best and easiest way to price an item is to see what other items like it have sold for. But in these cases, art and collections can be one of a kind and have no comparison. When this happens it can be a headache for a person planning their estate to account for the value of aesthetic beauty and rarity of their art. In this uncertainty though, there is room to maneuver to your advantage when it comes to planning out your estate.
Valuing Your Art
In the United States, if you are attempting to transfer a work of art valued over $50,000, the IRS goes through a process by which it independently evaluates the items. It is the IRS Art Advisory Panel who will have the final say when it comes to evaluating the value of your art, but this does not mean that they will not accept outside opinions. Traditionally art is valued by experts who work in the field, often those with very special niches, sometimes even down the individual artist. When an independent expert values your art, you can submit that assessment to the IRS for consideration.
Low End
The question for many people planning their estate is do they want their art valued at a high or low number. Like many questions in the legal world, it depends. If you want to pass on your rare art piece like a Monet to your children, it is better for it to be valued as low as possible. This will lower the value of your estate and help to eliminate high tax rates that your beneficiaries would end up paying if it were valued higher.
Getting that low valuation may not be entirely difficult if the market is right at the time of the valuation. Because most pieces of art are unique and it is an illiquid asset, it is often difficult to put a price on it. If there have been no sales of similar paintings by that artist in a few years, there may be no comparison available for valuation. The lack of comparison can allow for a lowball price to be attached to the piece of art with no way to counter saving your beneficiaries from potential tax pitfalls.
High End
On the other hand, sometimes it is best if your art is valued as high as possible. Because art is illiquid and oftentimes high value, many beneficiaries will not want to inherit it. After all, if you get stuck with your parent’s art collection but not enough money to cover the taxes that come with it, your options may be limited. Chances are you would rather have the money than the art and if you have to sell the art you most likely will be unable to get the best price due to your looming tax bill.
A better option may be to instead leave your art to charity and receive a tax break. When giving art to a charitable organization like a museum or art gallery, it is best if an appraiser can bump up the valuation to maximize the tax write-off. This will lower the amount of taxes potentially owed by your estate and allow for money liquid assets to be passed on to your children or family.