By Pamela Pierrepont Bardo
Agnes Ptasznik
In the past seven months, we have talked about: the ins and outs of buying and acquiring art and antiques; the importance of the right kind of insurance for these possessions; the importance of proper care and custody to the enduring value of these kinds of properties; the need for a “qualified appraisal” by a “qualified appraiser” as defined by the IRS and the professional societies that test and certify; the “Antiques Roadshow” appraisal and the popular appeal of the TV show; techniques of gifting; and how to be tax smart with your personal property and other assets in the 4th Quarter of the calendar year.
All these subjects are important for you to know about if you own and collect art and antiques and personal property in general such as fine jewelry, oriental rugs, antique cars, or even stamps. Collections of art, antiques and fine quality personal property are measurable hard assets, and you need to know about them, what their value is, care for them, and plan for their disposition in your estate planning because they are real assets just like your 401ks.
In the last two months, Agnes Ptasznik, attorney at Chuhak & Tecson, P.C., 120 Riverside Drive, Chicago, has lent her considerable experience to my conversation and the technicalities of gifting and estate planning for our cherished possessions. This month, Agnes will delve into the intricacies of an art collector’s ability to transfer substantial lifetime gifts of art, a process laden with crucial considerations.
Multi-million-dollar painting by Robert Motherwell
For individuals whose estates surpass the applicable exclusion amount, effective estate planning becomes paramount. In 2024, the federal applicable exclusion amount, also known as the lifetime gift and estate tax exemption amount, is anticipated to rise to $13.61 million. This benchmark, denoting assets exempt from federal estate taxes, forms the foundation for employing strategic techniques like transferring art to an irrevocable trust, specifically through the nuanced framework of an intentionally defective grantor trust (IDGT).
In this context, an irrevocable trust emerges as a robust mechanism for safeguarding and managing assets, including valuable artworks, given its inability to be altered without beneficiaries’ consent. The intentional “defects” within an IDGT, combined with the grantor’s role as the trust’s income taxpayer, amplify wealth transfer benefits by mitigating potential estate taxes. The process entails careful crafting of the trust agreement to incorporate intentional “defects,” ensuring the art’s removal from the grantor’s taxable estate for estate tax purposes.
Simultaneously, the grantor’s assumption of income tax liabilities on the trust’s income facilitates additional wealth transfer without triggering gift taxes. This sophisticated strategy proves advantageous, particularly when anticipating the art’s appreciation over time, allowing for future value growth outside the grantor’s taxable estate.
Nevertheless, the advantages of transferring art to an IDGT must be weighed against individual circumstances and objectives. The irreversible nature of the transfer, relinquishing control over assets, emphasizes the need for thoughtful consideration. Additionally, potential capital gains implications for beneficiaries upon the sale of the appreciated art should be carefully evaluated in comparison to the benefits of estate tax reduction. Seeking professional advice, especially regarding the comprehensive appraisal of art by a qualified appraiser and that of an estate planning attorney, becomes imperative to assess the viability of this approach based on unique financial situations, goals, and the specific nature of the art involved in estates valued above the applicable exclusion amount.
Please feel free to contact Agnes about your estate planning questions at 312-444-9300.
*This communication from Agnes Ptasznik and Chuhak & Tecson, P.C. is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.
