As Featured in the November Issue of the Boca Club News...

Investing in Art
Living with Art: The Art of the Gift

 
 Michael Mendelsohn author of the book, “Life is Short, Art is Long” and David Frohman, a Broken Sound resident, are experts and consultants in the field of art succession planning.They are founder and principal, respectively, of The Briddge Group. (www.thebriddgegroup.com) and also lecture widely on the subject

 Entering the last quarter of 2009, as a collector you may be thinking about some tax deductible gifting. Whether your collection is comprised of art, antiques or collectibles such as wine, books, coins or cars, giving away all or part requires careful planning.

 To structure a successful donation plan requires as much expertise, time and patience as it took to build the collection in the first place. Gifting part of your collection should include the interaction of an art succession planning team working with your attorney, accountant, financial planner and qualified appraisers, all doing the proper job to satisfy all IRS requirements, as well as to ensure that all of your personal wishes are met.

 There are two tiers of gifting a collection. Gifting from the top tier is usually done more for the formation of a family art legacy than as a tax deduction.Your team will make sure that your prized possessions will find the right home, to assure your gift may be preserved, exhibited and studied by future generations.

 Gifting from a lower tier requires a different set of strategies. You are usually gifting to create a current income tax benefit in the form of a charitable deduction. It is here that the advisory team needs to understand how the tax benefit can be used to increase your investment portfolio, purchase financial products needed in overall estate planning and gift to charities.

 Regardless of where on the grading scale the donated pieces fall, it is important to understand the related-use rule and how it affects your tax deduction. For example, if the intended organization has no art-related function --- such as many hospitals, religious institutions and schools --- the deduction will be allowed for the cost basis only. On the other hand, if the institution receiving the gift is a museum, historical society, or an organization supporting the arts, the donor will be entitled to a deduction for its fair market value, determined by an appraisal by a qualified appraiser.

 Before the Pension Protective Act of 2006 (PPA) a donor of appreciated art, antiques or other collectibles to a qualified charity was entitled to a charitable deduction equal to its Fair Market Value (FMV). Then, the PPA added a section to the Internal Revenue Code which, when applicable, puts a limit on the deduction.Under this limitation rule, if the donee charity disposes of the property within three years of the contribution, a donor of appreciated artwork is limited to a deduction equal to their basis in the artwork, not the FMV.For this reason, it is imperative that all parties in the gifting process understand that the intention of the donor is not to have the organization dispose of the art work within three years of the donation.It is situations like the above that make it most important that you, the collector, have consulting team that will ensure that all of the aspects of the law are considered for your best interests.

 When donations are not pre-arranged, an art succession planner can be instrumental in finding the appropriate and willing institution for the gift. An example of poor planning is illustrated in a recent Wall Street Journal article entitled, “Stripping the Walls to Cover the Bills.” The article detailed what happened when the University of Iowa’s Museum of Art was considering de-accessioning its most important work, Jackson Pollock’s 1943 Mural, in case money was needed to cover the cost of repairs after heavy floods damaged parts of the campus.

 Be assured that, in the spirit of this generous gift of the Pollock, it was never the intention of the donor to have it de-accessioned, especially to cover maintenance costs. This example once again points out the importance of adding an art succession team to your advisory group when art is to be given away, in order that the intention of the donor will be kept both now and in the future.

 Donating art, antiques, wine, coins, gems, antiques and collectibles to a charity can fulfill many goals. Among them: to create tax advantages, satisfy philanthropic goals and, in many cases, maintain the gift for future generations to enjoy.The best advice we can give you is to keep in mind that all transfers must be approached carefully and knowingly, with well-written documentation. This will ensure that the goals are fully met and no unintended consequences are triggered both now and in the future.The choice is yours; be you a tax payer or a philanthropist.