ESTATE PLANNING FOR ART, COLLECTIBLES, AND NFTS

Collectibles such as art, non-fungible tokens (NFTs), jewelry, antiques, sports memorabilia, wine and coins, present unique issues in the estate planning process. There are many options to meet your wishes and needs when it comes to the future of your art and other collectibles, but pre-planning is essential. Speaking with an experienced estate and trust planning lawyer who understands the nuances of planning for these assets is an important first step.

The team at Pierro, Connor & Strauss has extensive experience in estate planning for art and collectibles, and how they can be incorporated into your estate plan.  Call to schedule a free consultation with one of our art estate planning lawyers.

Estate Planning for Art Team
Caryn B. Keppler

Call us today for a consultation

Do you create, collect or sell art or other valuable collectibles and tangible personal property?

If so, understanding how to incorporate these treasured assets into your estate plan is a vital step towards saving taxes and making sure your wishes are fully carried out. At Pierro, Connor, & Strauss, our estate planning lawyers are well-versed in the unique planning opportunities available for your art and collectibles whether you are a creator, collector or dealer. We are here to answer all your questions and help you navigate through the potential pitfalls:

We are here to answer all your questions and help you navigate through the potential pitfalls:

  • How do you value a work of art or a collectible?
  • Are you taxed differently depending on your status as a creator, dealer, or investor?
  • If you are a creator, how do you create your legacy?
  • How do you transfer collectibles during your lifetime or pass it through generations of heirs?
  • How can you properly donate your valuable tangible personal property to charity with the optimum tax results for you and your family?
  • What are the tax issues for these objects that do not have liquid markets?
  • How can you plan for your intellectual property?
  • Does an NFT qualify as tangible personal property? How is the sale of an NFT taxed?

Unfortunately, if artwork and other collectibles are not specifically addressed in your estate plan, your heirs can be burdened with significant estate or inheritance taxes.  Our experienced art and estate planning lawyers at Pierro, Connor, & Strauss can help you save substantial money, time and frustration while planning for these unique assets.

TOP 10 MISTAKES TO AVOID WHEN ESTATE PLANNING INVOLVES ART OR COLLECTIBLES

For some individuals, art and other collectible assets make up a significant portion of their wealth. Taxes can be minimized and benefits to the client and heirs maximized when estate plans avoid these mistakes.

  • Not carefully classifying the client

    The IRS treats collectors, dealers, and investors differently; choosing the wrong category can lead to less favorable tax treatment.

  • Deliberately undervaluing a collection

    Some collectors secretly give away or otherwise dispose of collectibles to reduce the value of the estate, but this can constitute estate tax fraud, which is not subject to a statute of limitations.

  • Failing to plan ahead

    The value of art changes, often appreciating; when an estate plan does not account for this, it can disrupt the balance of the estate’s liquid and illiquid assets and leave the estate with a large tax bill.

  • Omitting a professional appraisal

    Proper valuation is required under IRS rules, and for items worth more than $5,000, the valuation must be provided by a qualified appraiser.

  • Failing to keep an up-to-date inventory

    It is impossible to effectively plan for your collection if you do not have accurate records of what it includes.

  • Neglecting provenance

    Purchase slips, authentication documents, and any memorabilia that show an item’s chain of title help the estate see the highest value for the collection.

  • Inadequately insuring collection

    There are several considerations when it comes to insuring art pieces or other collectibles, including the losses covered and where the collection may be stored.

  • Lack of communication with heirs

    Some collectors are surprised to find out that their loved ones do not share their appreciation for their pieces; knowing this in advance can help the owner make plans that will better protect the works.

  • Overlooking options for charitable giving

    Selecting a worthy charity can allow a collection to be appreciated by a wider audience and provide tax benefits to the collector or their estate.

  • Leaving experts off the team

    A carefully-made art succession plan will include input from experts like appraisers, dealers, other collectors of the niche, and experienced lawyers who know what questions to ask and what options are available to meet your goals.

DECIDING WHAT TO DO WITH AN ART COLLECTION

There are many ways to treat an art collection as part of an estate plan. Each option can affect how your estate or heirs are taxed. The most common choices are:

  • Leave to heirs – You may wish to bequeath individual items to specific family members or other individuals, and there is more than one way to do that. You can leave one or more pieces as a gift knowing that the recipient will not be under any obligation to keep or care for the artwork. Another option is to leave the art to an entity such as a trust or an LLC with instructions that they be insured and properly cared for.
  • Sell – Some collectors choose to sell all or part of their collection and direct where the proceeds will go. Selling artwork is more expensive than selling other assets due to higher tax rates. The burden can be lessened with careful timing, so it helps to work with an experienced art lawyer.
  • Donate – Leaving your art collection to a charitable organization has tax benefits for your personal taxes if donated while alive or for your estate if the donation is to occur upon death. However, if you wish to include any conditions to the donations, it is important to come to an agreement with the charity while doing your estate plan; waiting could jeopardize the donation and the tax benefit.

ASSESSING THE VALUE OF ARTWORK FOR ESTATE PLANNING

Both the market value and the intrinsic value affect how artwork can be treated as part of an estate.

The fair market value of a unique piece is not always clear. According to the IRS, “fair market value” is the price at which an object would change hands between a willing buyer and a willing seller when both are apprised of relevant facts, and neither is under pressure to complete the transaction. In addition, the art market is subject to fluctuations. The rise in intangible assets like NFTs (“non-fungible tokens” are digital signatures verifying ownership of, or the unique identity of, digital artworks) can further muddy the waters.

Under IRS rules, personal property having “marked artistic or intrinsic value” greater than $3,000 must have its value formally appraised. For estate purposes, artwork is valued as of the time of the owner’s death, so an appraiser will look at factors from that time. Part of the complex work that art appraisers do is assess the intrinsic value of art. This is determined by intangible qualities like its uniqueness or rarity. Factors like provenance, stylistic trends, and cultural importance play a role.

Though values can fluctuate, getting an understanding of your collection’s value and how it may change during the estate planning process can help you make informed choices.

Documenting an Art Collection

A thorough inventory of artwork makes estate administration more efficient. An inventory should include the information needed to identify each piece, including:

  • Serial Numbers

  • Photographs

  • Invoices

  • Insurance Policies

  • Appraisal Reports

  • Documentation of Provenance

  • Passwords or Keys for Digital Assets like NFTs

Keeping a folder with this information can be very helpful to your family or estate administrator. There are also art inventory management tools available that can keep the information up-to-date, organized, and accessible when needed.

SPEAK WITH AN ESTATE PLANNING LAWYER FOR ART COLLECTORS AND CREATORS

Artwork presents special questions when it comes to estate planning. There are many options to meet your wishes and needs when it comes to the future of your art and other collectibles, but pre-planning is essential. Speaking with an experienced art estate and trust planning lawyer is an important first step.

The team at Pierro, Connor & Strauss has extensive experience in estate planning for art collectors and other aspects of gift and charitable planning. Call to schedule a free consultation with one of our Albany art estate planning lawyers.

Life Happens…..Are You Prepared?

Contact us today for a FREE consultation and we’ll be happy to help take the worry out of tomorrow so you can live today.

Call Us