Collecting art is a hobby for some and a passion for many more.
Whether you enjoy paintings or avant-garde sculptures, you have likely derived great joy from surrounding yourself and filling your home with such beauty. This is a joy you want to pass on to your loved ones, and you might hope to do so by including your art collection in your will or trust.
There are several things you should know, though, before doing so. Art collections often come with tricky stipulations and may incur taxes that can complicate your estate. Take the following three facts into consideration if you are an art appreciator who is planning their estate with a will or trust.
Collections are illiquid assets
Because an art collection may not be sold easily or readily exchanged for cash, it typically qualifies as an illiquid asset. According to the Artemundi Global Fund, however, it is still an investable asset that can benefit a portfolio. This means you should consider whether your beneficiaries have the knowhow to effectively and actively manage the art collection as an investment.
Appraised value is important
Because of art’s status as an illiquid asset, the broker who completes the appraisal typically determines its value and tax liability. This process will affect your estate greatly depending on whether the appraisal quoted is high or low. The former may offer beneficiaries the advantage of selling the art for a higher price, while the latter can minimize the tax liability that they will shoulder.
Gift taxes may be applicable
In addition to the estate taxes beneficiaries will typically already face, leaving art to them may incur additional gift taxes. There are several ways that your heirs may avoid this, however, including a transference of ownership. It may be best to seek legal counsel for further information on including an art collection in your will.
