Estate Tax Planning . . .  ALERT

The information contained in this ALERT is not intended to constitute legal or financial advice.  Such decisions should only be made after consultation with a competent professional.

Michael Mendelsohn and Paige Hague are associated with Briddge Art Strategies, a leading firm dealing with issues relating to succession planning for collectibles, particularly artwork.  Their recent work Life is Short, Art is Long -- Maximizing Estate Planning Strategies for Collectors of Art, Antiques and Collectibles (published by Acanthus Publishing), contains information which could be very pertinent to members of The Doherty Estate and Financial Planning Society.

One of the first points the authors stress, one overlooked by many people, is that the long-term capital gains rate for these items is 28% -- not the 15% rate associated with typical long-term capital gains transactions.  Therefore, someone who thought a capital gains problem lurked in their planning may be shocked to learn that the problem is almost twice as bad as they anticipated!

I have expressed this thought during the 30 years I have been advising people on solving estate and financial problems: the most expensive succession plan for collectibles is the one that results from the failure to plan properly for the disposition of valuable tangible personal property.  If one just leaves highly appreciated collectible assets in a will to their children, they are likely to trigger an estate tax nightmare.  In an estate in which assets must be sold to raise money for estate and other transfer taxes, an auction is frequently arranged to liquidate the collectible assets.  It is not uncommon for the auction proceeds to be less than the tax bill, which obviously is not a pretty situation.  A little planning, utilizing life insurance to create liquidity, or implementing targeted charitable donations, can avoid all of these problems.

Unfortunately, on the charitable donation side of the equation, simply leaving pieces to a museum may not completely solve the problem.  Unless the piece has extraordinary appeal (and value), museums are becoming less enthusiastic about accepting wholesale gifts of artwork.  A visit to the basement of any major museum will reveal huge quantities of artwork which is never even displayed.  So, many institutions are reluctant to accept additional pieces, unless they are accompanied by a supporting endowment.  This is another strategy that can be effectuated with life insurance, which is particularly effective if the gift to the museum is to occur upon the donor's death.

In summary, as we see frequently, there are many unexpected twists and turns in settling an estate.  Make sure you do proper planning so your intentions are effectuated, and that transfer taxes and costs are minimized – if not eliminated entirely.

The hiring of a lawyer is an important decision that should not be based solely upon advertising.  Please visit the Doherty Professional Association at www.dohertypa.com today to learn about Mr. Doherty’s credentials and how he might assist you in estate and financial matters.