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Collectibles

Saving Taxes, Protecting Your Heirs and Your Legacy

Like many collectors, you may not think of your collection in purely financial terms. But when it comes to tax and estate planning, a valued collection is also a financial asset requiring the same careful consideration as any other financial asset. For many families, in fact, collections can represent a significant portion of their total net worth.

The Need For Planning

Collectors may find that, without planning, their ownership comes at the cost of substantial tax burdens. Art in a collector’s estate can produce very large transfer taxes, sometimes necessitating a sale to produce liquidity. And some collectors are unhappily surprised to find that a sale of artwork during their lifetime is taxable at a much higher rate than gains on other investments; art (and other “collectibles”) gains are taxable at a 28% rate. State and local taxes may impose additional costs upon a sale.

Assume, for example, that a collection is owned by residents in New York City. For our example they hold a piece of art acquired as a gift from the artist and now valued at $1 million. If they sell it, their $1 million gain will face a 28% federal long-term gains tax and a 12% state and local tax. (The effective tax rate will be 40% if they are subject to the AMT; the effective rate will be somewhat less if they are able to deduct federally their New York tax.)

If instead our New York residents hold their artwork until death, the tax cost is even higher. The maximum federal estate tax rate in 2007 is 46%, with state and local taxes bringing the effective rate to as high as 55%. To make matters worse, the tax is due nine months after the death. Often the executor of the estate is forced to sell the art and use the proceeds to pay the liability. However, this task can prove difficult as art is a highly illiquid asset and can often have a relatively small number of potential buyers.

The Strategic Exit For Collections

We recognize that few collectors are aware of their strategic options. Fortunately, there are many viable planning strategies with attractive end results. Our educational and consulting programs will assist you to find the best set of strategies that best meet your individual unique objectives including:

  • 1031 Exchanges
  • Structured Sales
  • Charitable Solutions
  • Advanced Estate Strategies

We believe each individual collection is unique, with its own themes and personality. Similarly, we also believe the circumstances which should be considered when developing a strategy around selling and transferring collections are specific to each collector. Our professionals will identify and implement the strategy that best achieves your objectives.