Art Is Long and Life Is Short: Planning for the Art in Your Estate
1. Document what you have. The more documentation you can gather about your art during your lifetime, the better. A process that includes a catalog, photographs, insurance and appraisals of the works in your collection, and documentation of authentication, will help you and your advisors construct an estate plan and ensure that your personal representative has important information needed to manage the art during the estate process. This can save a significant amount of money and time in your estate.
2. Weigh your options for who should receive the art. Your options for distributing your art after your passing are essentially three-fold: sell, distribute to family or friends, or donate to charity - or a combination of these. There are pros and cons of each, and all should be discussed with your advisors and with any family members or friends to whom you plan to leave any part of your collection. They may, in an open and honest discussion, decline the gift or share that they would prefer to sell the work and have the proceeds. Similarly, if you have charitable donations in mind, it is important to understand whether a charity such as a museum will accept the art and whether - and to what extent – your preferred museums will be willing to include the art in their exhibitions.
3. Identify and work with professionals experienced in art to be involved in your estate. If your collection is large, consider naming an art advisor, or make provisions in your Will for your personal representative to hire a person appropriately qualified, to assist in organizing the appraisal, sale, insurance and storage of the art. This step may not be necessary if you have just one or two pieces, but if the collection is more vast, it could be of tremendous help to a personal representative who does not otherwise have experience in the art world.
4. Plan for appraisals, taxes, illiquidity and expenses. Appraisals in an estate context are crucial. Generally, any piece that is possibly over $5,000 should be appraised. If a federal tax return is filed and selected for audit, pieces of great value (more than $50,000) will be referred to the IRS Art Appraisal Services unit, who may consult the Art Advisory Panel, a group of 25 experienced dealers, scholars and curators, to determine the value or adjudicate any contested matters related to the appraised value of the art. This process may be time consuming and result in unexpected change in the value of the art for tax purposes. The delay associated with such an audit, and the tax impacts, expenses (insurance, appraisal, etc.) inherent in the process itself, even without an audit, may be unwelcome to other heirs in your estate, whose inheritances may be diminished due to the costs associated. Even if the plan is to sell the art, it may take several months, or longer, for the sale to occur. Being ready for this reality, and setting expectations in your plan and among your heirs if your collection is large, is an important part of planning for the art in your estate.
Discussing options with your advisors is the first step. If you have any questions about how to best plan for the art in your estate, please contact a member of the Stokes Lawrence Estate Planning Group.