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The Art of Tax Planning: Federal Gift and Estate Taxes, Gifts and Bequests to Charities, and Art Foundations

January 1, 2015

The Art of Tax Planning

Fine art is increasingly making headlines as record breaking auction prices steal the attention of collectors, hopeful artists, and art market enthusiasts. At the same time, the perception of a rising art market has brought fine art to the attention of investors around the world, who now consider it an alternative asset class to be evaluated alongside real estate, hedge funds, and other investments. Many collectors have realized tremendous appreciation on their accumulation of emerging and contemporary art, and a select few artists are experiencing strong financial success from their creations. However, unlike traditional investments, fine art can be incredibly illiquid and difficult to manage. A highly appreciated art collection belonging to an art investor, or a body work in the possession of a successful artist, can become a significant liability if not planned for prior to the owner’s passing.

The federal estate tax can be an unwelcome surprise for the unsuspecting heirs to an art collection. The tax owed on a major collection could even exceed the cash and liquid assets available in the estate, forcing the executors to sell artwork rapidly or in large blocks, reducing the value of the art and harming an artist’s long-term reputation. On the other hand, effective planning can ensure that the estate tax is not a major impediment to an artist or art collector’s wishes, and perhaps even involve the family in a philanthropic mission that can provide benefits for many years.

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