Estate Planning for Art

Too often they use what is referred to as "empty hook" or "moving van" planning: Shortly before or after death, their children back up a moving van to the house and remove the collection without reporting the transfers as gifts or inheritances.

Estate-tax examiners expect to see a certain level of personal property reported on an estate-tax return commensurate with a collector's level of wealth, and this so-called planning can easily backfire.

Auditors routinely request copies of any insurance policies on art and other collectibles owned by a descendant to verify holdings. Remember, there is no statute of limitations for estate-tax fraud, or on a taxable gift for which no return was ever filed.

Even collectors who leave collections to museums and report the transfers may not be attending to necessary details. The museum may not want the works or, if accepted, will keep them stored and not put them on display as the collectors had wanted. Some museums, as a condition for accepting a gift, may want a cash donation to help defray the cost of storage and maintenance for donated items.

The Right Way

Instead, create a strategic plan for your collection, preferably with an adviser who has experience in succession and philanthropic planning.

This could cover such areas as strategic selling, donating to a museum, putting the collection in a trust or limited partnership, setting up a private foundation -- all ways to minimize capital gains and estate taxes. Which opportunities are most appropriate will depend on your goals, values and stage of life.

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