When it comes to estate planning,determining the value of artwork can be disputable and very difficult to pindown. However, in order to fit art into your estate plan, you need properâ€œvaluationâ€ â€“ an art in itself.
You see, pinning a price to apiece of art is no easy task. Even more challenging than valuing a closely-heldbusiness interest, the value attributed to art truly is in the eye of thebeholder. When you add additional complicating factors like â€œsplit ownership,â€the process becomes even more difficult. This â€œcomplicationâ€ is furthercompounded if you are seeking a â€œvaluation discountâ€ to boot.
A recent case involving artwork byJackson Pollack is illustrative.
The case before the tax courtinvolved the Estate of James Elkins, as explored by Forbes in an article titled â€œOnly Modest Valuation Discounts Allowed OnEstate Artwork.â€ The detailsof the case get a little tricky, and not just because itâ€™s a $6 million JacksonPollack painting, but because the IRS fought the valuation discount claimed.Ultimately, the court awarded a small valuation discount. Even then, however,the common justifications warranting discounts, such as â€œlack of marketabilityâ€and â€œlack of transferability,â€ didnâ€™t garner much sympathy. In the end, themodest valuation discount was hard fought and gained only due to the fracturedownership of the painting.
Read the original article to getall of the details, but here are the CliffNotes taken from the article itself:
In sum, TheEstate of Elkins has three lessons for anyone who owns or advises owners ofsignificant collections of artwork.
- Valuation discounting can work with artwork,
- Just plugging artwork into a discountingplan based on lack of marketability and lack if transferability will onlygenerate a modest discount, and
- The safest route for valuation discountingis to have specialized split interest trusts and other discounting methodscrafted specifically for artwork, so that the valuation issue is old and coldby the time the estate tax return is filed.
For more information on art and your estate contact IdahoEstate Planning and schedule aconsultation. Remember,good planning is no accident.