Does art require special estate planning considerations?

On behalf of Scaringi Law posted in Estate Planning on Saturday, October 3, 2015.

Estate planning is often from the perspective of the grantor. Yet beneficiaries may have questions about the tax implications of their inheritance assets, especially for valuable items like art, antiques or real property.

The federal government does not have an inheritance tax, and only eight American states impose this type of tax, of which Pennsylvania is one. The rate of inheritance tax is based on a percentage of the value of the decedent's estate, and is listed on the Pennsylvania Department of Revenue's website. Transfers to a surviving spouse are taxed at zero percent, as are transfers by a child under age 21 to a parent.

For an item like a painting, however, valuation disputes can arise. According to one commentator, the art market has a wide range, and tax authorities may accept a low valuation simply because there is little basis for comparison regarding the market value of unique items like art. Said another way, art works generally are perceived as having a lack of liquidity.

Yet that illiquidity can present a problem to heirs who need to generate revenue from the sale of an artwork. Savvy art buyers may perceive the seller's urgency to sell and offer far less than a fair amount. To avoid this dilemma, a grantor might consider estate planning strategies, such as placing art in a trust and then simply leasing it back during their lifetimes.

Our law firm focuses on estate planning. We can help individuals protect their investments, including unique items like art or real property.

Source: The New York Times, "Estate Planning Can Get Tricky When Art Is Concerned," Conrad De Aenlle, Oct. 1, 2015