July 2021

Valuable Art Can Create Estate-Planning Challenges. How to Help Clients Solve Them | Barron’s

By Jim Bertles | July 2, 2021

The value of an art collection to a family can’t be measured in dollars alone. For advisors, it’s important to remember that while the financial value of a piece of art is certainly important, the sentimental and legacy value can often be the more complicated aspect to navigate when it comes time to gift these collections.

With recent proposals from President Biden’s administration suggesting that lower gift, estate and generation-skipping tax exemptions could come into play as early as this year, many wealthy Americans are looking for ways to protect their valuable art collections now.

This includes giving them away either to family members or museums while retaining the ability to use them. Some strategies advisors may want to recommend include:

  • Spousal Lifetime Access Trust (SLAT): The artwork is transferred by gift into an irrevocable trust for the client’s spouse and possibly also family members at its current value. As long as the couple remains married, he or she gets to continue to enjoy the art as part of the spouse’s beneficial interest. The trust assets (art) are removed from the client’s and spouse’s estates, so that all future appreciation is not counted towards their gift or estate tax exemptions and can pass free of transfer tax to future generations.

  • Grantor Retained Income Trust (GRIT): The IRS disallowed GRITs for family members using marketable securities, but still allows them for tangible personal property, including art. In this structure, the client transfers the art to an irrevocable trust and retains the right to possess and enjoy the art for a period of years. When that term ends, the art is distributed outright or in further trust for the benefit of the trust’s remaining beneficiaries. For gift tax purposes, the client is typically able to obtain a discount on the value of the gift.

  • Partial ownership: Here clients can donate a percentage of the ownership of their art to a museum, then share the use of it. For instance, the client could give away an undivided 50% interest in a work of art to a museum, thereby obtaining a charitable income tax deduction for the value of the donation while still allowing her or him to retain possession and enjoy the art for six months of the year. At the end of 10 years, however, the museum must take ownership of the remaining 50% of the work of art.

Dividing an art collection among heirs can be a contentious process, which is why it’s important to make sure clients proactively involve their family members in creating a plan for transferring these assets. With potential changes to estate and gift tax rules coming, now is a good time to talk to your clients about how they can protect their legacy art collections.

Jim Bertles is a managing director at Tiedemann Advisors and is responsible for working with clients and their advisors and developing trust, tax and estate planning solutions for clients.


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