Centara Connection

New Pitfall In Gifting Artwork To A Museum

Brittany Oates, Estate Planning Attorney

Some people donate a “fraction” of a work of art to a museum during their lifetime, and give the rest of it years later by gift or bequest. Generally, the museum gets the artwork for part of the year and the donor gets it the rest of the time. This allows a donor to claim an immediate charitable deduction for part of the work’s value, without having to actually give up the art altogether. However, a new law creates a wrinkle for such donors. It says if you give a fractional interest in property now, and later donate the remainder, the later charitable deduction must be based on the value of the work at the time you first donated a portion of it.

For example, if you own a painting worth $1 million, and you donate a 50 percent interest in it to a museum. You also leave the other 50 percent to the museum in your trust. By the time you die, the painting has appreciated to $1.5 million. This would mean that the 50 percent you still own at death is part of your estate and worth $750,000. However, when you leave it to the museum, your estate can only take a deduction based on 50 percent of the value ($500,000) at the time of the fractional gift. The difference between the value of the asset and the value of the deduction remains in your taxable estate and could result in some unexpected estate tax for your heirs!

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