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Ok, Who Gets the Renoir?

Of all the fights that can erupt during divorce proceedings or when a family member leaves behind a large estate, some of the biggest take place over the artwork.

A recent Wall Street Journal article, titled "Tips for Dividing Art in a Divorce or Death," warns that fighting can be avoided if art lovers and their loved ones learn a little about some legal and tax basics. The original article offers some ideas on how to decide—in a fair and civilized manner—who gets what, and the ways of disbursing an art collection to minimize taxes.

First, after an art collector dies—before anyone starts eying their walls for a new masterpiece—the entire estate must be finalized in probate court, which can take some time (maybe even years). If the deceased's home is not occupied, the original article advises to upgrade the security to transfer the art to a climate-controlled fine-art storage facility. None of the art should be removed before the court-approved distribution, and the decisions about the art should be part of the overall estate planning, as art that passes at death is subject to a step-up in value for tax purposes. All artwork will need to be appraised professionally.

Even if an art collector specifies who gets what, there still may be problems. For instance, if a collector wills a painting to one person and gives everything else to another, the second individual will be responsible for paying the estate tax for the painting. The original article suggests that the will should specify that each heir will pay his or her share of taxes on the assets received.

For a person who dies in the current year (2014) there is a federal estate tax threshold of $5.34 million, so an estate worth less than that has no estate tax liability. However, the article reminds us that you only need one Picasso or Warhol to put you over that line and make your estate taxable. This tax could be as much as 40%! To make matters worse, some states also tax up to 20% above a $1 million threshold.

The original article also describes how collectors will sometimes sell art to help defray anticipated estate taxes. Alternatively, you should read the original article and talk to your estate planning attorney about setting up a tax-exempt charitable remainder unitrust and gift artwork into the same.

If there is a Degas in your dining room or maybe a Dali in your den, speak to an experienced estate planning attorney about a strategy to pass your collection to your family in the most prudent manner.

You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.

Reference: Wall Street Journal (Sept. 21, 2014) "Tips for Dividing Art in a Divorce or Death"

 

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