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The Wall Street Journal recently reported that the irrevocable trust, a common estate-planning tool, is increasingly being used by art owners as a tax-savings measure.
Here's the gist. An art owner gifts ownership of his or her painting or art collection to an irrevocable trust. The painting is no longer part of the art owner's estate, and so the value of the estate is reduced for tax purposes.
In addition, the painting is appraised at the time of the gift. The amount of the appraised value above the $14,000 annual exemption from gift taxes will be deducted from the art owner's lifetime combined federal gift-tax and estate-tax exemption (currently $5.45 million). If that exemption has already been used up, the art owner will pay tax on the gift – however, this tax liability will likely be less than if the art owner keeps the painting in the estate.
Read more here.
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