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Art, estate taxes and irrevocable trusts

One type of collection some individuals have is an art collection. Art collections can have many benefits for a person. However, they can also pose some challenges. 

For example, they could potentially raise estate tax issues. Pieces of art can be quite valuable. Thus, there are circumstances under which an art collection could put a person's estate at risk of crossing the value threshold that would expose it to federal estate tax liability upon the person's death. 

Now, there are measures an art collector could take to try to minimize the potential estate tax implications of their collection (if their collection raises potential estate tax issues). One possible option is to put their artwork in an irrevocable trust. 

Assets placed in an irrevocable trust generally aren't considered part of a person's estate. As a note though, putting assets in an irrevocable trust can have gift tax implications.

Thus, putting artwork in an irrevocable trust could have a variety of estate-tax-related ramifications, with what specific effects it would have very much depending on the circumstances. Thus, the range of details it can be important to consider when deciding whether putting artwork in an irrevocable trust would be a good estate tax move is quite wide.

When a person puts an art collection they have into an irrevocable trust, what specifically will happen with the artwork when they pass away depends on the specific terms of the trust. This is among the many reasons why giving very careful thought to terms is critical when setting up an art-related irrevocable trust

Another thing it is important to note about artwork-related irrevocable trusts is that, when a person puts artwork in such a trust but wishes to continue to use the artwork (such as continue to have it up in their house) they will generally need to pay rent to the trust for the use. What this rent is set at matters greatly, as setting it too low could create some significant legal problems.

As this illustrates, art-related irrevocable trusts can raise some complex legal issues. When a person is thinking of putting art or other assets into an irrevocable trust for estate tax purposes or other estate planning reasons, they should consult with an experienced and knowledgeable estate planning lawyer on the matter.

Source: The Wall Street Journal, "Art Collectors Discover Irrevocable Trusts," Daniel Grant, March 27, 2016

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