How Should I Pass Art Through My Estate Plan?

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Art can prove a tricky asset in estate planning.

You love art.

It is beautiful.

It is meaningful.

It can also be costly.

Your precious works of art may become an estate planning challenge.

According to a recent Financial Advisor article titled “Putting Art Into Charitable Remainder Trusts,” tangible assets like artwork can be difficult to divide among heirs and can trigger taxes.

A charitable remainder trust can help you pass art.
You may not be able to pass art directly to your heirs.

Although the art brings you peace, it can create a headache for your loved ones when you are gone.

What options do you have?

You could sell the art.

Now.

Simply selling artwork could trigger taxes if the work has appreciated in value since your acquisition.

You could also be forced to sell at a time when the painting is not as popular.

In this situation, your asset will have become a liability.

You could also split the art ownership among your children.

This could leave them with an inheritance tax burden depending on where you live.

If this happens, the art may need to be sold just to pay the bill.

Fortunately, neither Kansas nor Missouri has an inheritance tax (or even an estate tax).

You may also face the issue of equal distribution.

What if there are not enough paintings for each child?

How would you divide the paintings if there is a significant disparity in value for each?

Obviously, if you have other estate assets, then the various inheritance shares could be adjusted with cash or other assets to make them equal.

What if no one wants the artwork, but you could use some additional income and tax deductions?

With the help of an estate planning attorney, you could set up a charitable remainder trust.

What does this do?

As a tax-exempt irrevocable trust, this option can decrease your taxable income.

How?

Assets transferred into the trust are owned by the trust and not by the individual who funded the trust.

The trust provides income to you, for a set time frame sweetened with income tax deductions.

At the end of the period, the funds in the trust are donated to a designated charity.

Doing so provides you with an opportunity for income, a tax deduction, and the ability to support a beloved charity.

Sounds like a classic win-win-win to me.

Reference: Financial Advisor (Feb. 21, 2020) “Putting Art Into Charitable Remainder Trusts”