If you have spent a lifetime researching and collecting fine art, it’s natural to want to share that passion with your heirs when you die. However, many members of the Baby Boomer generation are finding that their Gen X children and Millennial grandchildren are not quite as interested in fine art as they are.
Knowing that your grandchild may not recognize a beautiful work of art when they see it, you will want to think about the best way to approach your collection as you begin the estate planning process.
Generational difference and the art of gifting art
As the Baby Boomer population ages, experts predict that the largest transfer of intergenerational wealth is about to tax place. Baby Boomers have enjoyed a lifetime of success, coming of age during a simpler time from which they benefited greatly. Now, they are starting to pass down their wealth to their children, grandchildren and great-grandchildren, and experts are surprised to learn that most Boomers are not worried about their cash as much as they are worried about their fine art collections.
According to Reuters, 58 percent of art collectors in the Baby Boomer generation are concerned that their heirs will not have an appreciation or understanding for their collection. Another 57 percent are most concerned about the tax implications associated with gifting their art.
The younger generation may not be as passionate about the art collection of their elders, but they should be aware of the collection and understand what their parents or grandparents would like done with it. Fine art collectors should work with curators or consultants to help transfer their property with explanation, which will empower the next generation to manage the art collection appropriately.
How to use art gifting as a tax deduction
There are ways to reduce the tax implications of gifting fine art to your heirs. Those who are interested in gifting their art so that they or their heirs can enjoy a tax break should do the following:
- Take advantage of the current federal estate tax threshold, which is set at $11.4 million for an individual. Gift your most high-priced art items early, so that your heirs do not have to pay significant estate taxes on the value of the art after you pass away.
- Place the art into a trust, so that the taxable value cannot climb any higher than it is today. For example, if you place a work of art valued at $1 million today into a trust and its value increases to $5 million at the time of your death, your heirs are only responsible for the value of the art at the time it was put into the trust.
Starting the estate planning process? Talk to a legal professional.
Whether you have an art collection valued at several million dollars, or you have one coveted piece of fine art that you want to pass down to a beloved relative, it's important that you work with an attorney who specializes in estate planning when you create your will. You will want to make sure that you take advantage of any tax breaks available to you, and that you make thoughtful decisions about what to do with the collection that you worked so hard to acquire.
For more information about estate planning in Texas, contact our law firm today.