Art collections are curated with passion and care. They often represent an important part of a family’s legacy, making their stewardship fraught with financial, and often emotional, considerations. The paintings, sculpture, antiques, and other treasured objects you have collected over a lifetime may represent an important part of your family’s legacy. Deciding the future of your artwork can be difficult, emotional, complex and intensely personal.
There are many ways to dispose of your artwork following your death. Perhaps you see your artwork hanging on the walls of a museum or benefiting a charity. Maybe you want to instill a love of art in your family and hope your heirs will become stewards of your collection. When it comes to the legacy you wish to create with your artwork, following are some things to consider and discuss with your legal and tax advisors.
1. Giving to Family Members
Before making a gift of artwork to family members, it is important to have an honest and thoughtful conversation with them about the responsibilities of owning this valuable property. Sometimes family members who have enjoyed and appreciated an art collection while it was in your care, may be uncomfortable receiving it and undertaking the responsibilities of keeping, preserving and caring for it. On the other hand, some family members may want to own your collection but are unaware of (and unable to pay) the costs to properly house, insure, secure and maintain it.
There are many things to consider when transferring unique assets, such as artwork, to family members. Because each family (and family member) is unique, there is no one-size-fits-all approach to transferring your collection. While your disposition will be as unique as your family, you may consider:
- If one member of the family is more of an art lover than others (and can properly care for the artwork), it may be appropriate to give or bequeath the collection to that person and give or bequeath other assets to other family members.
- Perhaps, each member of your family should receive a few pieces from your collection. In this way each family member may receive their favorite works (which may result in fewer family arguments). Be sure to consider dispute resolution provisions, in case two or more family members desire the same work.
- It is possible to transfer your entire collection to multiple family members as co-owners. However, giving an entire collection to multiple individuals as co-owners can create administrative nightmares as well as conflict in the family.
If you give artwork to family members while you are alive, you should not possess (and display) it after the gift without paying the new owner fair market compensation for its use. Failure to pay compensation for the use of property that you have given away will likely cause the value of the property to be included in your gross estate and subject to estate tax when you die.[1]
Tax Consequences
Transferring artwork by gift during life or by bequest after death can have tax consequences to both the transferor and recipient.
The United States imposes a gift tax on transfers made during life and an estate tax on transfers made at death. The generation-skipping transfer tax is an additional tax on transfers that skip one or more generations. Generally, outright transfers to a spouse or transfers to a trust that benefit a spouse and that meet certain requirements are not subject to the gift or estate tax.[2] For gifts or bequests to other individuals, there is an exclusion from the gift and estate tax, which for 2023 is $12.92 million and for 2024 is $13.61 million.[3] To the extent that the exclusion is used during life, it is not available at death. A gift or estate tax is imposed on transfers having a value greater than the transferor’s unused exclusion amount. Appreciation on property transferred during the donor’s lifetime, generally, escapes the estate tax upon the donor’s death.
Whether a transfer is made during the donor’s life or upon the donor’s death can produce different results for income tax purposes. Generally, neither a gift made during life, nor a bequest made at death is subject to income tax when received.[4] However, the recipient of a gift made during life, generally, receives the donor’s basis in the property,[5] whereas, subject to exceptions, the recipient of a bequest following death receives a new basis in the property equal to the property’s fair market value on the decedent’s date of death or the alternate valuation date.[6] Thus, the recipient of a gift of artwork from a living donor that has appreciated in value not only receives the artwork, but an unrealized capital gain, too.
2. Selling Your Artwork
You may decide that selling your artwork is the best approach. For example, selling your artwork may prevent family arguments, particularly if more than one person desires a specific piece or pieces. Selling can also provide liquidity, which can be particularly important as the federal (and perhaps state) estate tax is due nine months following your death. Selling your art can also reduce your expenses and increase your income by converting an asset that costs money to maintain into investment assets that can generate income. Finally, it is much easier to divide liquid assets among your beneficiaries (including charitable organizations).
Tax Consequences
Artwork held in a collection is a capital asset. If you sell your artwork for a price greater than its basis, you have a capital gain. If you owned your art for one year or less, the gain is a short-term capital gain and would be subject to tax at ordinary income tax rates. If you owned your artwork for more than one year, the gain is a long-term capital gain.[7] Artwork is a collectible.[8] Long-term capital gain on the sale or exchange of artwork is a “collectibles gain” and is subject to capital gains at a tax rate of 28%.[9] Additionally, if certain income thresholds are met, the gain may also be subject to a Net Investment Income Tax of 3.8%.[10]
As described above, if you transfer your artwork upon death, it will receive a basis adjustment bringing its basis to its fair market value on that date or the alternate valuation date.[11] Accordingly, unrealized capital gain would be eliminated and a sale at date of death (or alternate valuation date) value would not cause a capital gains tax. However, the value of the artwork would be included in your gross estate; and to the extent your taxable estate exceeds your remaining applicable exclusion amount, your estate would be subject to a federal estate tax.
3. Donating to a Museum
One way to create a legacy with your artwork, is to donate it to a museum.
- Museums can exist in perpetuity. After receiving the gift, it is the museum’s responsibility to house and care for the artwork.
- As part of a museum’s collection, a work of art could be temporarily loaned to another art institution, allowing more people to appreciate it.
- A museum may display your artwork in its catalogues or other materials even before title has been transferred.
Before donating your art to a museum, discuss your gift with the museum’s curators and other administrators to develop a partnership with the museum, learn its policies and understand what will happen to your artwork after you make the gift. If you wish to establish conditions for or place restrictions on your gift, be sure the museum understands what they are and will accept them before making the gift. Be sure your attorney works with the museum’s staff and attorney to properly document the gift, particularly if your gift will come with conditions or restrictions. If you make an unrestricted gift, following are some things to consider:
- Giving your art collection to a museum does not guarantee that it will be displayed. It could be placed in storage or one or more works could be sold (although selling parts of a collection is often frowned upon by other donors, grant making organizations and other museums).
- If a museum has an overabundance of work by a particular artist, it may not accept your gift if it adds to the number of works by that artist. Also, your gift may not be accepted if it does not fit the museum’s focus or purpose.
- Certain types of art are better candidates for donation than others.
- Museums may desire only part of your collection. In that case, only a portion of your collection may be appropriate for donation, leaving you to dispose of the rest in other ways.
- The value of artwork given to a museum is diverted away from your family. If artwork forms a large portion of your net worth, consider replacing wealth lost to your family with another asset, such as a life insurance death benefit.
Promised Gifts
A promised gift (sometimes called a pledge) is a legally binding, irrevocable agreement whereby a donor pledges to give a work of art to a museum at a future time. If you do not wish to irrevocably commit to making such a gift during your lifetime, you can donate art to a specific museum in your estate planning documents. Your will (or revocable trust) can be changed until you die or become mentally incapacitated.
Your agreement with the museum should prevent it from selling the artwork you give for at least three years from the date of the gift. A sale within three years could jeopardize any income tax charitable deduction that you received. Of course, no income tax charitable deduction will be allowed until the gift is actually made.
Tax Benefits Come with Rules
The rules with respect to the income tax charitable deduction can be complex. Often you must substantiate your gifts and provide qualified appraisals to the IRS.[12] Failure to follow the rules exactly can lead to the loss of your ability to take the deduction.[13] It is important to work with appraisers, legal advisors and tax advisors who have experience with gifts to charities.
4. Benefiting Other Charitable Groups
You may wish your collection to have a charitable impact beyond the art community. If you decide to give your artwork to a charity with a purpose unrelated to art, consider whether it is better to donate the work to the organization or to sell the work and donate cash.
If artwork is not used in a way that relates to the organization’s charitable mission, the donation will not satisfy the related use rule.[14] In that case, the amount that you may deduct (before applying other limitations) will be reduced by the capital gain you would have realized had you sold the property for its fair market value at the time of the gift. Accordingly, your deduction would be limited to the property’s basis.[15]
There is another reason you may wish to sell the artwork and simply donate the proceeds to the charity. If you itemize deductions and make charitable contributions, you may be able to deduct on your federal income tax return the amount of such contributions, limited by the application of certain percentages of your contribution base. Your contribution base is your adjusted gross income (AGI) computed without regard to any net operating loss carryback to the taxable year. Cash contributions to public charities made before January 1, 2026 are deductible up to 60% of your AGI.[16]
Accordingly, it is worthwhile to analyze whether giving appreciated artwork or selling the artwork and giving cash would produce a greater tax benefit.
Seek Assistance
The disposition of your artwork can be complicated, being a decision that is both financial and (often) emotional. Working with your legal and tax advisors, PNC Private Bank® has the resources to help guide you through the sometimes-difficult process of disposing of your artwork, including the Hawthorn Institute for Family Success® and your PNC Private Bank Wealth Strategist. To learn more, contact any member of your PNC team.