For some of your clients, the thought of giving artwork to a museum or other charity might have crossed their minds. Otherwise, in the estate plan you’ll build for the art collector, the choices largely boil down either to selling the pieces, or giving them to family and loved ones during life or through a bequest.

It is imperative to understand the tax consequences of each disposition scenario as you advise your clients about their collectibles. For example, clients may not realize that the higher capital gains rate of 28% generally applies to artwork and other collectibles–not the 20% rate typically applicable to sales of other types of capital gains assets. And this higher rate has been the subject of some tax reform discussions. 

Many clients would prefer to hold onto their art collections, rather than sell during their lifetimes, in order to take advantage of the step-up in basis upon their deaths. 

Charitable giving is an option here, too, and your client can potentially avoid capital gains and estate taxes by donating artwork to a nonprofit organization. However, be aware that the rules are different depending on the type of charity (e.g., a museum versus a foundation) and whether the charity’s use is related to its exempt purpose (e.g., a museum versus an animal shelter). 

CFAAC can advise on complex giving opportunities – whether your clients’ estates include artwork, digital assets, real estate, or closely-held stock. We’d love to help you evaluate the options for achieving both your clients’ tax goals and charitable planning goals.