Do you have something from Great Grandma sitting in your closet? Do you know the value?  Is it protected?  Do you have a plan to pass it down or sell it?

Many of us seek professional advice when it comes to planning for the distribution of our real property, stocks, and savings upon our death.  However, due to a number of emotional reasons, we often fail to plan for how our most precious possessions, works of art, antiques, or other valuables, will be handed down.  Perhaps we have a particular child in mine but are fearful of seeming to show favoritism.  Even worse, we are sure that none of our heirs will protect or keep our precious possession in the manner that we would like it to be kept.  Whatever the reason, too often our art and artifacts are left without a proper home upon our demise.  In addition to the emotional challenges that passing down these precious valuables presents, an owner must be aware of the tax consequences for doing so in the absence of a plan.

For example, the potential for defrauding estate tax authorities is rampant when bequeathing valuables.  When a collector dies, all too often the recipients will remove the artwork directly “off the hook” according to author Bonnie Kraham.  In such an instance, Kraham states, the estate is left with “empty hooks” of what may have been a sizable taxable estate for estate tax purposes.  This especially poses a problem because often families who collect artwork or antiques often have records of their purchases as well as a list of items for insurance purposes, which later turn up during the estate administration process.  One solution to this problem is to transfer the valuables into a trust with the help of a professional estate planner.

The first step for creating an estate plan that encompasses all of your possessions, whether by trust or will, is to gather the necessary data.  It is recommended that obtaining an appraisal from a qualified independent appraiser is necessary to establishing the value of your tangible property.  This is important because if your possessions are worth more than you thought, your estate may bear an additional estate tax liability, which could also affect the disposition of your other assets.  To highlight the significance of this issue, an appraisal of items must be submitted with the estate tax return where any one item is valued at more than $3000.00 or where any collection of similar items is worth more than $10,000.  The IRS has a special Art Advisory Panel to which reports on a tax return of any item with a value of $20,000 or more are referred.  Fiduciary Trust of Boston reports that the Art Advisory Panel disagreed with almost one-fourth of the appraisals submitted in 2005 and recommended adjustments to tax returns totaling more than $62.9 million.

To officially document the value of an estate, the formal appraisal is absolutely necessary.  Through examination and research, the reputable appraiser provides a value documented thoroughly with extensive written back up according to the uniform standards of personal property appraisals.  Extensive description, pictures, and condition reports are included.  Documentation of how the value is established is also provided.   A reputable appraiser will consider a variety of factors including size, location, and types of items.  The final result of a proper estate appraisal should be accepted for tax purposes at both the state and federal levels.

So once your qualified estate planner and appraiser have assisted with the tax consequences of bequeathing your valuables, how do you address the emotional consequences?  One such method that qualified estate planners use is an equalization clause when leaving possessions to certain heirs over others.  Such a clause provides that the value of precious possessions specifically bequeathed would be considered and equalizing distributions of cash made if necessary.  In this way, your heir who would be the better steward receives the possessions, while your heir who would not receives a distribution in kind at an equalizing level.  Of course, if an equalization clause would not resolve the issue in your family, there is always the option of charitable giving during your lifetime.  A related gift, such as a gift of artwork to a museum or a rare book to a library will provide a deduction equal to the fair market value of the property at the date of the gift.  Since fair market value of the property is the key here, once again a proper appraisal will be necessary before any charitable gifting can be completed.

If you are planning to sell the item in the near future rather than bequeath the item as part of your estate, a good way is to consider obtaining an auction estimate from a quality auction house.  The auction estimate is the amount an auction house projects the item will bring in present market conditions.  They are effective as a current value, provided more quickly than a formal appraisal, and generally performed for no fee or a small fee.  An auction estimate does not provide the detailed back up and written documentation on a formal appraisal.  However, the auction estimate can be useful in determining a value for a fair distribution when passing along items to children while the giver is living.  Auction estimates can also provide helpful information when determining which items to keep and which items to sell for assistance in deciding an issue as crucial as whether to downsize and sell the family home. 

We all accumulate personal property during our lives.  Whether we are thinking of our estate plan, downsizing, or just plain curious, we all have items that cause us to wonder, “What is it worth?”  

Ruggiero Law Offices is here to help you with valuation of your collectibles, antiques and fine arts.  

Contact Ruggiero Law Offices to discuss your personal situation.

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