Caryn B. Keppler

Estates and Trusts

Using a Private Foundation to Preserve an Artist’s Legacy

Thoughtful estate planning is essential for artists seeking to ensure the long‑term preservation, management, and presentation of their lifelong work. Although executors and trustees can competently administer the legal and financial aspects of an estate, they may lack the specialized knowledge required to oversee a significant body of artistic work. Establishing a private foundation—whether in the form of an operating foundation that directly manages, displays, and loans artwork, or a non-operating foundation that supports public charities—can provide a structured and durable mechanism for stewardship. By appointing directors who are artists or professionals familiar with the creator’s oeuvre, these entities can administer, conserve, and promote the artwork in a manner consistent with the artist’s intent. As a result, private foundations can serve as an effective vehicle for extending an artist’s legacy and ensuring that their work remains accessible and properly managed for many years beyond the administration of the estate. Structure of a Private Foundation: Corporate vs. Trust A private foundation can be established in either trust format or as a nonprofit corporate entity.  Choosing the format of the entity depends on desired flexibility, liability, and administrative burdens. Nonprofit corporations are generally preferred for their flexibility, greater liability protection for their directors, and ease of modification. Trusts are simpler to form but are more rigid, often requiring court approval to amend, and are best for straightforward non-operating or grant-making foundations. Nonprofit Corporations Flexibility: Allows for amending bylaws, changing the charitable purpose, or moving the location — all without court intervention. Liability: Offers better protection for its officers and directors.  Structure: Requires a board of directors, regularly scheduled meetings held at least annually, minutes, and formal state filings. Best for: Foundations with complex activities, multiple individuals in charge, or that may evolve over time. Trusts Simplicity: Easier and less expensive to set up, with fewer administrative requirements such as regular meetings and minutes. Control: Usually in the hands of one or more trustees who are appointed by the donor, who provides rigid guidelines in the governing instrument that are difficult to change. Modification: Amending a trust often requires court approval, making it less flexible and adaptable to change. Best for: Simple, grant-making foundations with a specific, unchanging purpose. What is the difference between operating foundations and non-operating foundations? An operating foundation is a private foundation that focuses on direct service by running its own programs in support of its charitable purposes, while a non-operating foundation is a charitable entity that distributes funds to public charities rather than operating its own programs.  An operating foundation actively conducts its own programs, such as operating a museum, library, or research facility. An operating foundation may also provide grants to individuals, provided that those grants are within the foundation’s purposes. It must meet IRS "income" and "asset/service" tests to prove it is actively running programs rather than just holding assets. Generally, an operating foundation offers higher tax deductions for donors (up to 50%-60% of adjusted gross income) than a non-operating foundation. However, an operating foundation must spend at least 85% of its annual income on direct, active charitable activities.  A non-operating foundation exists to support one or more specific public charities. It is typically funded by one or more individuals and focuses on grant-making to other qualified non-profits. Deductions to a non-operating foundation are limited to 30% of an individual’s adjusted gross income, and the foundation is required to pay out at least 5% of its assets annually to public charities. Since most artists’ foundations are formed to support and promote an artist’s legacy, they are usually formed as operating foundations unless the foundation is formed to sell the artist’s works and donate the proceeds to public charities. What are the duties and responsibilities of the board of directors of a private foundation? The board of directors of a private foundation leads the organization by defining its strategic vision, managing operations, and ensuring financial, legal, and ethical compliance. They are responsible for overseeing the officers of the foundation, who are the face of the organization with respect to fundraising, stewarding donors, cultivating relationships, and overseeing grantmaking programs that align with the foundation's mission. The board of directors is usually composed of at least three individuals. Some of the key responsibilities of the board of directors include: Mission & Strategy: Developing long-term goals, policies, and strategic plans for the foundation. Financial Oversight: Managing the foundation’s investment portfolio, approving budgets, reviewing audits, and ensuring tax compliance. Grantmaking and Programs: Developing grant guidelines and monitoring the distribution of funds. Leadership Oversight: Hiring, supporting, and evaluating the officers of the foundation, actively identifying and managing potential conflicts of interest, and ensuring transparency and accountability. Governance: Recruiting new board members, planning for succession, and maintaining foundation records. How do the foundation directors and officers interact with an artist’s works and intellectual property? The directors and officers are responsible for overseeing the management, preservation, and use of both the foundation’s physical artworks and its related intellectual property rights. Their authority and responsibilities are defined by the foundation’s governing documents, applicable state nonprofit law, and federal tax‑exempt organization rules. Some examples include ensuring the proper care, conservation, storage, and security of the foundation’s art collection; overseeing how copyright or other intellectual property rights to the artist’s work are licensed, enforced, or shared; ensuring that all interactions with the artwork and intellectual property comply with the IRS’s private foundation rules. Are the foundation directors and officers permitted to donate the artist’s artwork, organize exhibits, or sell the artwork? In general, the directors and officers of a private art foundation may donate, exhibit, or sell artwork only to the extent that those activities are consistent with the foundation’s governing documents, tax‑exempt purposes, and fiduciary duties. A private foundation’s charter, bylaws, and mission statement typically define how the artwork may be used and the scope of the directors’ and officers’ authority. Directors and officers may donate artwork if the donation furthers the foundation’s exempt purposes, for example, advancing the arts or supporting educational or cultural institutions. However, directors must avoid self‑dealing, meaning the artwork cannot be donated in a way that benefits disqualified persons, including directors, officers, substantial contributors, or related parties. Directors and officers are generally permitted to organize exhibitions, loan artworks, or otherwise make the collection accessible to the public. These activities are typically well aligned with a private operating foundation’s mission to directly manage and display the artist’s work, or a non-operating foundation’s mission to benefit public charities that further the foundation’s purposes. Directors and officers must ensure that exhibition or loan arrangements are documented at fair market terms and are consistent with the foundation’s charitable objectives. Directors and officers may sell artwork when doing so is allowed by the governing documents, consistent with the foundation’s purpose, and conducted at arm’s length and for fair market value. Sales to insiders or related parties can raise significant self‑dealing concerns under IRS rules applicable to private foundations. When permitted, sales may be used to fund operations, conservation efforts, or long‑term endowment needs. Finally, directors and officers must always act in the foundation’s best interests, preserve charitable assets, and comply with the Internal Revenue Code rules governing private foundations, including those related to self‑dealing, excess benefit transactions, and prudent investment of assets. How often do foundation directors meet? How are the meetings, held and what is discussed in those meetings?  Board meetings are necessary because directors have legal fiduciary duties, which include the duties of care, loyalty, and obedience, all of which require active oversight and informed decision‑making. Regular meetings ensure that the foundation complies with nonprofit and tax‑exempt requirements, documents major decisions, manages charitable assets responsibly, and carries out its mission. Written and recorded minutes of all board meetings are essential to provide a clear governance record should the foundation ever face audit, regulatory review, or future questions about its stewardship of the artist’s legacy. The frequency and format of board meetings for a private foundation are determined primarily by the foundation’s governing documents, its bylaws, and organizational policies. Most private foundations hold board meetings at least annually, while many choose to meet quarterly or semi‑annually to fulfill fiduciary oversight responsibilities. Additional special meetings may be convened as needed, particularly when significant decisions arise concerning the foundation’s assets, including the management or disposition of artwork. Meetings may be held in person, virtually, or through hybrid formats, provided the bylaws and applicable state nonprofit law permit remote participation. Virtual meetings have become increasingly common due to their practicality and flexibility. Regardless of format, directors must receive proper notice, and the foundation must maintain accurate minutes documenting the actions taken. At each meeting, directors review matters related to governance, finances, and program activities. For an art-focused private foundation, discussions often include the following: Collection Management: Conservation needs, storage conditions, insurance coverage, cataloguing updates, and loan requests. Exhibitions and Programming: Potential exhibitions, partnerships with museums or cultural institutions, and educational initiatives. Intellectual Property Management: Licensing requests, reproduction permissions, and protection of the artist’s moral rights. Financial Oversight: Review of operating budgets, endowment performance, fundraising (if applicable), and compliance with expenditure responsibility rules. Legal and Compliance Matters: IRS private‑foundation compliance, conflict‑of‑interest reviews, self‑dealing safeguards, and approval of significant transactions. Strategic Planning: Long‑term preservation of the artist’s legacy, mission alignment, and governance succession planning. Are foundation directors compensated? The directors of a private foundation may be compensated with a "reasonable" salary or fees. Compensation should be outlined in the foundation's bylaws or governing documents, must not be excessive, and is typically based on industry standards. However, most directors of private foundations serve without compensation; only about 25% of private foundations compensate its board members, often using methods like annual retainers or per-meeting fees.  Directors’ compensation is considered reasonable if it is what similarly situated individuals are paid for similar work at comparable organizations. Directors can be paid for professional and administrative services, including managing investments, legal work, accounting, overseeing foundation operations, and any work that is necessary to conduct the foundation’s exempt purposes. Directors are prohibited from receiving compensation for routine clerical work, physical labor, or services not related to the charitable purpose. Since directors are "disqualified persons," improper or excessive compensation can trigger IRS penalties (excise taxes) for self-dealing. Common methods of compensation include monthly or annual retainers, per-meeting fees (often $2,000+), or salaries. It is essential to document board approval and justify the salary amount to ensure it is not excessive, particularly for founder salaries, which are often 10%–25% of revenue. How are private foundations exempted under Section 501(c)(3) of the Internal Revenue Code? Private foundations qualify for tax‑exempt status under Section 501(c)(3) of the Internal Revenue Code by being organized and operated exclusively for charitable purposes, such as educational or cultural activities. To obtain this status, the foundation must (i) have organizing documents that limit its purposes to those permitted under §501(c)(3), (ii) refrain from activities that provide private benefit to insiders, and (iii) file Form 1023 or Form 1023‑EZ with the IRS to request recognition of exempt status. Once approved, the foundation must comply with the private‑foundation rules, such as restrictions on self‑dealing and minimum distribution requirements, to maintain its exempt status. If the application for a charitable exemption under Section 501(c)(3) of the Internal Revenue Code is submitted within 25 months of the formation of the private foundation, gifts to the foundation will be eligible for a charitable exemption under Section 170(c) and Section 2522 of the Internal Revenue Code dating back to the date of formation of the entity. Filing Form 1023 within 25 months (which is within the 27-month deadline) allows a non-profit to be recognized as tax-exempt retroactively from its date of formation. If the application is filed after the deadline (27 months from the end of the month of formation), the exemption is only effective from the date of the submission, meaning previous years may require amended tax filings by both the entity and its donors. Filing before the 25-month deadline ensures that all income earned since formation is exempt, and donations made to the organization are tax-deductible from the inception, provided it met 501(c)(3) requirements during that period. If done properly, the organization avoids having to pay corporate income tax for the period between its formation and the approval of the exemption, avoiding potential "gap" issues where tax might be owed. What are other team members in a private foundation? A private foundation typically relies on a broader team beyond its board of directors to ensure proper governance, financial management, and strategic oversight. While the board of directors is ultimately responsible for fulfilling fiduciary duties and guiding the foundation’s mission, several key roles support the foundation’s operations and compliance. Officers are the public face of a foundation. There are four types of officers that help the directors manage a private foundation, and they include the president, vice president, secretary, and treasurer. Each role serves a different purpose, but it is common for one person to hold one or more roles. President/CEO The president or chief executive officer provides overall leadership, reports to the board, sets agendas, and ensures that the foundation operates in accordance with its mission and governing documents. The president often serves as the primary liaison between the board and the public, including donors, museums, advisors, and service providers. Vice President The vice president supports the president and may assume leadership responsibilities in the president’s absence. Depending on the bylaws, the vice president may oversee specific committees or initiatives, such as exhibition planning or legacy programs. Secretary The secretary maintains the foundation’s official records, including meeting minutes, board resolutions, and governance documents. This role is critical for ensuring transparency, regulatory compliance, and properly documented decision‑making, particularly important for a private foundation managing valuable artwork. Treasurer The treasurer oversees financial matters, including budgeting, accounting practices, investment oversight, and compliance with IRS rules governing private foundations. The treasurer works closely with financial advisors and accountants to ensure proper stewardship of assets and adherence to annual reporting requirements. In addition to the directors and officers, the foundation may engage other professionals to serve as part of its advisory team. Although not required, these individuals can help ensure that the foundation operates smoothly and effectively. Legal Counsel Attorneys experienced in nonprofit and tax‑exempt organizations help interpret IRS rules, draft governance documents, review contracts (e.g., loan agreements or licensing deals), and advise on self‑dealing and conflict‑of‑interest safeguards. Accountant / CPA A certified public accountant plays a central role in maintaining the foundation’s financial books, preparing the annual federal tax Form 990‑PF, ensuring compliance with private‑foundation excise tax rules, and advising on issues such as valuation of artwork, endowment management, and expenditure responsibility. Art Advisors, Curators, or Conservators For foundations centered on an artist’s legacy, professionals with expertise in art handling, conservation, exhibition planning, and market knowledge may assist the directors and officers in making informed decisions about the artwork. Executive Director or Administrative Staff (if applicable) Some foundations appoint an executive director or administrative team to manage day‑to‑day operations, coordinate programs, and support the board in implementing strategic initiatives. Together, these individuals form a governance and advisory structure that ensures the private foundation operates responsibly, fulfills legal obligations, and effectively advances its charitable mission, particularly important for foundations entrusted with preserving and promoting an artist’s work. For artists, the process of estate planning involves more than transferring assets; it requires establishing a structure capable of preserving, interpreting, and managing a lifetime of creative work. A private foundation can serve as a legally durable vehicle to steward an artist’s collection, intellectual property, and reputation in a manner consistent with the artist’s intentions. Whether organized as an operating foundation dedicated to managing and exhibiting the artwork directly, or as a non-operating foundation whose purpose is to support public charities, this approach provides a clear governance framework and ensures that qualified directors are entrusted with long‑term oversight. Given the legal, tax, and fiduciary complexities associated with forming and administering a private foundation, artists should seek guidance from competent legal counsel. An attorney experienced in nonprofit, tax‑exempt, and estate planning matters for artists can help determine whether a foundation is the appropriate vehicle and ensure compliance with applicable state and federal laws.

March 5, 2026

Estates and Trusts

Major Estate Tax Changes Under the One Big Beautiful Bill Act

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, is a sweeping piece of legislation spanning nearly 1,000 pages. It includes significant changes to federal estate and income tax laws that will affect estate planning. Here’s an overview of a few key provisions in OBBBA and some strategic estate planning opportunities that it provides. Estate and Gift Tax Exclusion Increased Effective January 1, 2026, the federal estate and gift tax exclusion increases to $15 million per individual (or $30 million per married couple), with future adjustments for inflation. Although the increased exclusion was made “permanent” under the Act, it may still be changed or repealed by a future Congress or administration. High-net-worth clients should take full advantage of what may be a limited window for significant planning options. Spousal Lifetime Access Trusts (SLATs) and Grantor Retained Annuity Trusts (GRATs) are excellent options for front-loading an estate plan while still allowing the client or spouse access to assets. Individuals who have already utilized all or a portion of their current exclusions should consider “topping off” their current estate plans with additional gifts. While the increase in the federal exclusion amount provides substantial federal tax relief, state-level estate and inheritance taxes still apply, in many jurisdictions: 12 states (Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington) and the District of Columbia continue to impose an estate tax Six states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania) impose an inheritance tax Connecticut is the only state that also imposes a gift tax New York does not have a gift tax, but adds back gifts made within three years of death to the taxable estate With proper planning, assets can still be transferred free of both federal and state-level transfer taxes, but state-specific rules must be carefully navigated. Spousal Lifetime Access Trusts (SLATs), Dynasty Trusts, and sales to intentionally defective grantor trusts offer excellent opportunities to both leverage and utilize the $15 million federal gift tax exclusion while removing those assets from a state estate tax regime. New York’s Estate Tax “Cliff” New York’s estate tax has a particularly harsh feature known as the “estate tax cliff.” This means that estates just slightly over the exclusion amount may lose the exclusion entirely and owe significant tax. For example, in 2025: A New York taxable estate of $7,160,000 will owe no estate tax A New York estate of $7,161,000 will owe $2,863 in tax A New York estate of $7,518,000 will owe $707,648 This makes planning for residents of New York and similarly situated states especially important. New York State residents, and even non-resident individuals with substantial New York situs property, should consider making immediate and significant gifts designed to lower their New York taxable estates below the cliff. If they survive three years after the gift, the gifted property will be excluded from their New York taxable estate.  Generation-Skipping Transfer (GST) Tax Exemption The federal GST tax exemption also increases to $15 million per individual beginning January 1, 2026. This is particularly relevant for gifts or bequests made to “skip persons” (such as grandchildren) or to trusts subject to GST tax. Despite the increase, careful planning is still needed to make full use of this exemption. Unlike the federal estate and gift tax exclusion, the increased GST tax exemption is not “portable” – meaning that unless both spouses’ GST exemptions are used during life, they may be forfeited at the first death. And like the federal estate and gift tax exclusion, the increased GST tax exemption is also subject to a potential repeal if the political winds change. For clients and their families focused on multi-generational planning, now is the time to “use it or lose it” by fully sheltering appreciating assets from the generation skipping tax in an irrevocable trust.  Careful allocation of exemption is the key to maximizing tax efficiency and wealth for future generations. SALT Deduction Cap Raised — But with Limits Starting in 2025, the cap on deductions for state and local taxes (SALT) increases from $10,000 to $40,000. This is especially beneficial for residents in high-tax states. However, the increased cap phases out for high-income earners: For those with modified adjusted gross income (MAGI) between $500,000 and $600,000, the cap is reduced by 30% of the excess MAGI The deduction is completely phased out for taxpayers with MAGI of $600,000 or more Unless extended, the cap will revert to $10,000 in 2030. Clients living in high-tax states should consider “stacking” multiple non-grantor trusts. Since each trust is treated as a separate taxpayer under the Internal Revenue Code, carefully drafted multiple trusts can potentially reallocate MAGI and shelter thousands of dollars in SALT deductions that could not otherwise be taken on an individual’s income tax return. Changes to Charitable Giving Rules OBBBA introduces new benefits and limitations for charitable giving: The 60% limitation for cash contributions to qualified charities is not “permanent” Standard deduction filers can now take an additional $1,000 charitable deduction ($2,000 for joint filers) Itemizers are subject to a new 0.5% floor, meaning charitable deductions are only allowed to the extent that total contributions exceed 0.5% of adjusted gross income (AGI) before losses To maximize deductibility, the new 0.5% floor encourages consolidating charitable giving in a single tax year. For high-net-worth individuals, this is the perfect opportunity to fund or expand a private foundation. Donor-advised funds may also provide an option for maximizing charitable giving in a single year while providing flexibility in the choice of charities and the timing of distributions. Final Thoughts The OBBBA marks a significant shift in the tax landscape for estate planning. While some changes provide enhanced opportunities for wealth transfer and charitable giving, others introduce complexity and planning pitfalls — especially at the state level.

August 7, 2025

Estates and Trusts

Choosing Mediation to Protect Families and Legacies

Why Mediation? Blood and money make for a tough mix. As an attorney with a decades-long trusts and estates practice, I’ve seen it all: siblings clinging to childhood grievances, children from a first marriage resenting a stepparent, new spouses competing with adult children, and half-siblings emerging after a parent’s death. Estate litigation is not only lengthy and emotionally exhausting, it’s also extremely expensive. By the time the legal dust settles, the parties have often spent more on attorney fees than they’ll receive from the estate. Worse yet, already strained family relationships are often left permanently fractured. Seeing the damage these disputes inflict on families is what led me to seek certification as a mediator. What Is Mediation? Mediation is a voluntary form of alternative dispute resolution where parties work together to resolve conflict with the help of a neutral third party—the mediator. The mediator doesn’t make decisions like a judge or jury. Instead, their role is to guide the parties toward a mutually acceptable agreement crafted on their own terms. Because the outcome is collaboratively reached, mediation often leads to less bitterness, fewer hard feelings, and more durable resolutions. How Does Mediation Work? The process begins with an initial meeting between the mediator and the parties. If attorneys are involved, the mediator may speak with them beforehand to gather background information. During the joint session, the mediator explains the process and invites each party to share a brief summary of the situation from their perspective. An agenda is then established. Each party is encouraged to listen respectfully to the other’s point of view. Following this, the mediator typically meets privately with each side to delve deeper into the issues, explore underlying tensions, and identify opportunities for resolution. This approach allows for creative settlements that courts may not be able to impose. Importantly, mediation is fully confidential. Nothing disclosed during the process is admissible in court should the mediation not result in a settlement. Why Choose Mediation? Cost-Effective: Mediation is significantly less expensive than litigation. While parties may still retain legal counsel, the process usually requires fewer billable hours and avoids extensive court procedures. Mediator fees are typically shared equally by the parties. Efficient: Court cases can drag on for months or even years. Mediation often resolves disputes in a matter of hours or days. Private: Unlike court proceedings, which generate public records, mediation is confidential and discreet. Flexible: The parties—not a judge or jury—control the outcome. This allows for creative, personalized solutions that reflect the unique dynamics of the family. Relationship-Preserving: By encouraging open communication and cooperation, mediation can help mend strained relationships and preserve family ties. Mediation offers a path forward that is more cost-effective, efficient, and humane than litigation. In the emotionally charged arena of estate disputes, it provides families with an opportunity not only to resolve their legal issues but also to do so in a way that promotes healing, dignity, and when possible, reconciliation.

June 5, 2025

Estates and Trusts

Cultural Perspectives on End-of-Life Planning: Traditions, Taboos, and Practical Considerations

The United States is an ever-changing cultural landscape. As a nation of immigrants, we are a complex patchwork of individuals from diverse backgrounds, each bringing distinct ethnic, cultural and religious beliefs. Estate planning attorneys must recognize and respect these differences, as they are deeply embedded in our social structure. To be culturally competent attorneys, we must view each client as a unique individual whose background may influence decisions regarding estate distribution, end-of-life planning and burial arrangements. Cultural Influences on End-of-Life Planning End-of-life planning involves some of the most intimate decisions a person may make, often shaped by religious and cultural beliefs. Attorneys cannot assume a client’s preferences regarding burial, cremation or body donation. Additionally, alternative burial practices such as green burials or organic reduction are gaining popularity, though they may be restricted in certain states or prohibited by specific cultural or religious traditions. Despite the discomfort these discussions may bring, engaging in frank and honest conversations with clients is essential to ensure their final wishes are honored. Religious and Cultural Funeral Practices Islam Islamic law emphasizes minimizing harm. When making end-of-life medical decisions, Muslims are encouraged to pursue treatments that preserve life while avoiding those that may cause unnecessary suffering. As death approaches, a Muslim may lie on their right side, facing Mecca. Upon passing, the deceased’s eyes and mouth are closed, and family members recite a final prayer. Islamic funeral customs require that the body be washed, shrouded, and buried as soon as possible. Embalming is generally prohibited, and cremation is strictly forbidden. The deceased is placed on their right side in the grave, facing Mecca, often with a layer of rocks covering the gravesite to prevent direct contact with the soil. Judaism Judaism also emphasizes the sanctity of life and minimizing suffering. Aggressive medical intervention is encouraged only when it does not prolong suffering. After death, mourners traditionally tear their clothing as a sign of grief. The body is cleansed, groomed, and wrapped in a simple white shroud. A designated “shomer” (guardian) remains with the body until burial, which should occur within 24 hours. Traditional Jewish burials use plain wooden caskets with no metal fastenings. Embalming and cremation are discouraged, and mourners may take part in filling the grave with soil as a final act of respect. Buddhism Buddhist traditions focus on facilitating a peaceful transition to the next life. Burning incense during a person’s final moments may be customary. After death, the body is often left undisturbed for a period, typically up to a week, to allow the soul to transition peacefully. Buddhist funeral customs vary by region, but cremation is the preferred method of disposition, as it is believed to free the soul. In Tibetan Buddhist tradition, a high-altitude burial, where the body is offered to vultures, is customary, though this practice is not permitted in the United States. Catholicism Catholics receive three sacraments at the end of life: anointing of the sick, confession, and Holy Communion. These sacraments provide spiritual comfort, forgiveness, and preparation for the afterlife. The anointing of the sick involves a priest blessing the individual with sacred oil, confession allows for absolution, and Holy Communion serves as spiritual nourishment. A Catholic funeral typically includes a vigil, a Funeral Mass and a Rite of Committal. While cremation is allowed, traditional burial is preferred, and cremated remains must be buried rather than scattered or kept at home. Eastern Orthodox Christianity Eastern Orthodox Christians emphasize sacraments at the end of life. A priest administers the final confession and Holy Communion, and individuals are encouraged to avoid medications that may cloud their consciousness during these sacred moments. After death, the family washes and clothes the body in the presence of a priest. Embalming is optional. A wake is held before the funeral, and hymns, such as the Trisagion, are sung during the procession from the funeral home to the church and then to the cemetery. Cremation is not permitted, as the body is considered sacred even after the soul has departed. Chinese Funeral Customs Chinese funerals are deeply rooted in tradition, with customs varying based on geography and religious beliefs. However, certain elements remain consistent across different communities. Before the funeral, families often consult a feng shui master to determine an auspicious date and time for the funeral and burial. In some cases, the master may also select the grave’s location, which is traditionally on a hillside but never beneath a tree. The deceased is typically dressed in white, though individuals who lived to be 80 or older may be clothed in colorful garments to celebrate the long life. Family members customarily hold a three-day visitation period, during which they spend time with their loved ones before the funeral. When the casket is sealed, all family members turn their backs to avoid the belief that their souls could be trapped inside. Similarly, they avert their gaze when the casket is lowered into the grave. Incense is often burned throughout the funeral service and at the gravesite as a sign of respect.  Families may also burn spirit money, known as “joss paper,” to ensure their loved one’s comfort in the afterlife. While cremation is permitted, it is customary for family members to witness their loved one being placed in the cremation chamber. Hindu Funeral Customs Hindu funeral rites are deeply intertwined with the belief in reincarnation. Since the physical body is no longer needed after death, cremation is considered the most effective way to release the soul and facilitate its journey toward rebirth. Before cremation, the body undergoes a sacred cleansing ritual, during which it is washed with ghee, honey, milk, and yogurt. The head is anointed with oil, the hands are placed in a prayer position, and the big toes are tied together. The deceased is traditionally wrapped in a white sheet, adorned with a garland of flowers and rice balls. A lamp is placed near the head as part of the ritual. Hindu tradition emphasizes a swift cremation, usually within 24 hours of death. Until then, the body remains at home, allowing family members to pay their respects and participate in final rites. Unique Cultural Funeral Practices South Korea: Burial Beads In 2000, South Korea enacted a law requiring the removal of remains from burial sites after 60 years due to limited space. As an alternative, many South Koreans now transform their loved ones cremated remains into colorful beads, which are displayed in homes. This practice has also gained popularity among South Koreans who live in the United States. Ghana: Fantasy Coffins In Ghana, elaborate, custom-made coffins celebrate the deceased’s personality, profession or passions. These artistic coffins, crafted in shapes such as animals, airplanes, or everyday objects, serve as tributes and works of art, ensuring a vibrant and meaningful send-off for loved ones. Conclusion These are only a short list of the different cultural and religious traditions influencing end-of-life planning. Estate planning professionals must be sensitive to these diverse perspectives to ensure that the clients’ wishes are properly honored. By fostering open discussions and respecting cultural practices, attorneys can provide thoughtful, personalized guidance that aligns with their clients’ values, beliefs and traditions.

March 21, 2025

Estates and Trusts

Not Considering the Importance of Charitable Giving

This is Part 10 in a Series of the Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients. When a client’s family does not wish to inherit a collection or if its inclusion in the estate would create a significant tax burden, it is crucial to explore charitable giving options. Proper planning can help maximize the benefits of a donation while avoiding unintended legal and tax complications. Ensuring the Charity Will Accept the Gift While many clients may assume that institutions will welcome their generous donation, not every organization is willing or able to accept a collection. Before naming a charity as a beneficiary in estate planning documents or making a present gift, it is essential to confirm the charity’s willingness to accept the donation and any conditions the client wishes to impose on its use. Establishing this agreement in advance can prevent post-mortem disputes and ensure the estate qualifies for the intended tax deductions. Tax Benefits of Lifetime Charitable Giving Beyond philanthropy, charitable gifting can provide substantial tax benefits. Clients should be advised on the income tax advantages of donating all or part of their collection during their lifetime. A charitable income tax deduction is available for contributions of art and collectibles to a public charity, provided the property qualifies as capital gain property and meets the related-use rule (discussed below). If these conditions are met, the donor can deduct the full fair market value of the collection in the year of transfer, subject to a limit of 30% of their adjusted gross income (AGI). Any excess deduction may be carried forward for five years. Since the property must qualify as capital gain property, a lifetime charitable deduction for the donation of art or collectibles is only available to clients who qualify as collectors. As noted in Mistake #1 of this series, creators and dealers recognize ordinary income upon the sale of art and collectibles. Moreover, creators have little incentive to donate their work during their lifetime, as any charitable deduction would be limited to the cost of materials rather than the item’s fair market value. Under the related-use rule, the donee charity must use the donated property in a manner that aligns with its exempt purpose under Internal Revenue Code Section 501. If the charity’s use is unrelated to its mission, the donor’s deduction is limited to the property’s cost basis rather than its appreciated value. Additional limitations apply under the Pension Protection Act of 2006 if the charity sells the donated property within three years of receipt unless the organization certifies that the donation was used for its exempt purpose. For the creator and dealer, it usually makes more sense to consider selling the item and donating the proceeds to charity.  Doing so avoids the related-use rule and the requirement that the item be capital gain property. In such a case, the charitable deduction may offset, most if not all of, the ordinary income realized on the sale. Public Charities vs. Private Foundations Clients should also understand the key differences between donating to a public charity versus a private foundation. Donations to public charities allow a deduction based on the collection's fair market value, provided the collection is capital gain property and the related-use rule is met. Donations to private foundations, however, only permit a deduction based on the donor’s cost basis, and the deduction is limited to 20% of AGI. Excess amounts may still be carried forward for five years. Fractional Gifts and Changes Under the Pension Protection Act One of the biggest challenges in lifetime charitable gifting is persuading clients to part with their collection while they are still alive to enjoy it. Before August 17, 2006, clients could donate a fractional interest in tangible personal property, allowing them to share ownership with a charity while retaining partial possession. However, the Pension Protection Act introduced stricter valuation, time, and use limitations that impact the deductibility of fractional gifts. Under IRC Section 170(o), the deduction for a fractional gift is now limited to the lesser of: The value used to determine the deduction for the initial fractional donation, or The fair market value at the time of subsequent contributions. Additionally, the donor must fully transfer their interest in the property within 10 years of the initial fractional gift or before their death—whichever comes first. The recipient charity must also take substantial physical possession of the item within one year of the initial gift (and within one year of any additional gifts) and satisfy the related-use rule. Failure to meet these conditions may result in the recapture of previous deductions, plus interest and an additional 10% penalty. Charitable Bequests and Estate Tax Benefits An outright donation of a collection upon death—whether to a public charity or a private foundation—qualifies for an estate tax charitable deduction based on the fair market value at the time of death. Importantly, bequests of tangible personal property generally do not trigger the related-use rule, making this a valuable option for clients seeking to preserve their collection’s full value for charitable purposes.  However, clients planning to donate a collection upon their death should always consult with the intended recipient during life to confirm the organization’s willingness to accept the gift. A public charity’s acceptance of art and collectibles typically depends on whether the donation aligns with its mission and whether it has the necessary facilities and financial resources to store or display the collection.

March 12, 2025

Estates and Trusts

Not Discussing Collections with Heirs

This is Part 9 in a Series of the Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients. A collection may hold deep personal significance for a client but may not carry the same sentimental or financial value for their heirs. It is essential to encourage clients to have open conversations with their heirs, as appropriate, to understand their intentions and expectations. In many cases, heirs may see a collection primarily as a financial asset rather than a legacy to preserve.  Clients should consider alternative disposition strategies beyond an outright bequest if they intend to sell the collection.  For instance, donating the collection to a museum, establishing a trust, or selling select pieces during their lifetime may better align with their goals. Even if heirs wish to keep the collection, clients should clarify whether they intend to retain it in its entirety or only select pieces. This distinction is crucial, as valuation discrepancies can arise when certain items are allocated to specific individuals, potentially impacting the overall fairness of asset distribution. Many clients express a desire to donate their collections to museums. However, before proceeding with such a gift, it is essential to confirm that the museum is willing to accept the items. Many museums already have extensive collections in storage and may not be interested in acquiring additional pieces. Additionally, if a museum does agree to accept a collection, it often requires a financial contribution to cover ongoing maintenance and preservation costs. Contacting the museum or other recipient organization before making the gift – especially if the donation is planned through a will or other testamentary document – is essential to ensure its acceptance. Most importantly, clients should consult with an expert in art succession planning. A knowledgeable advisor can help structure a well-organized, tax-efficient plan during life or at death and ensures a smooth transfer of the collection while honoring the client’s wishes.

March 7, 2025

Estates and Trusts

Not Properly Insuring a Collection

This is Part 8 in a Series of the Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients. Accidents happen—whether a piece of artwork or a collectible is damaged in shipping, affected by fire or water or even knocked over by Steve Wynn’s elbow. Having the right insurance in place can help mitigate financial losses and protect a client’s investment. Without proper coverage, even a minor incident could result in significant economic consequences. When insuring a collection, there are three primary options: Including it as part of a homeowner’s policy, Scheduling individual items separately, or Obtaining blanket coverage. For clients with valuable or extensive collections, we often recommend the additional effort and cost of scheduling items separately. This approach typically requires obtaining a qualified appraisal to establish fair market value at the time of coverage. To ensure continued protection, these appraisals should be updated regularly so that coverage reflects the collection’s current worth, rather than its purchase value. Total loss claims are rare. More often, insurers assess the damage to determine if an item is salvageable and provide funds for repairs or restoration. Unfortunately, this can lead to a loss in value that remains unquantifiable until the item is sold. To best protect collectible assets, clients should seek insurance from companies specializing in the relevant categories of items, even if it comes at a higher upfront cost. Additionally, different policies may be necessary if parts of a collection are housed in multiple locations. Are the items in a private residence, a storage facility or on loan to an institution? Are they owned directly by the collector or held within an entity or trust? Understanding these nuances ensures that each piece remains properly protected.

February 25, 2025

Estates and Trusts

Death Tax Repeal Act

On February 13, 2025, Republican lawmakers in Congress introduced the Death Tax Repeal Act, which aims to permanently eliminate the federal estate tax. Since 2015, various legislative efforts to repeal the estate, gift, and generation-skipping transfer (GST) taxes have been introduced in Congress but have failed to pass. Current Federal Transfer Tax Framework The Internal Revenue Code imposes a tax on an individual’s right to transfer property during life and at death. The federal gift tax applies to lifetime transfers at a rate of 40%, though individuals benefit from a "unified credit" that allows a certain value of transfers to be made tax-free during life and at death. In 2025, the unified credit stands at $13,990,000. Any combined transfers exceeding this amount are subject to the 40% tax rate. Additionally, the GST tax applies to transfers made to individuals who are two or more generations below the transferor or to certain trusts benefiting such individuals. The GST tax is also levied at 40%, with an exemption matching the unified credit amount of $13,990,000. Impact of the 2017 Tax Cuts and Jobs Act (TCJA) Under the 2017 Tax Cuts and Jobs Act (TCJA), enacted during the first Trump administration, the unified credit and GST exemption were temporarily doubled. However, since the TCJA was passed as a reconciliation measure, it is set to expire on December 31, 2025. Unless Congress takes further action, the unified credit and GST exemption will revert to their 2016 levels, adjusted for inflation, or approximately $7,000,000 each. Key Provisions of the Death Tax Repeal Act The Death Tax Repeal Act seeks to go beyond simply extending the TCJA provisions beyond December 31, 2025. If enacted, it would: Permanently repeal the federal estate and GST taxes, allowing individuals to transfer unlimited amounts of property at death free of transfer tax. Establish a permanent $10,000,000 lifetime exemption against the gift tax (indexed for inflation to $13,990,000 in 2025). Transfers exceeding this exemption would be subject to a 35% tax rate. Retain the current "step-up" in basis for capital assets at death, minimizing capital gains taxes for beneficiaries upon the sale of inherited assets. Implications for Estate Planning The passage of the Death Tax Repeal Act would significantly impact estate and wealth transfer planning. Estate planning documents that currently reference the federal unified credit or GST exemption amount would need to be reviewed to ensure they align with the proposed law and the client's intentions. Additionally, several states impose a separate estate or inheritance tax — Connecticut, District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska (County inheritance tax only), New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Washington and Wisconsin — or have decoupled from federal estate tax provisions. If the Death Tax Repeal Act becomes law, many of these states will continue to impose their own estate and/or inheritance taxes. Clients residing in or owning property within these states may require substantial revisions to their estate planning documents to optimize state transfer tax savings. Next Steps Our team of estate and trust attorneys is closely monitoring the progression of the Death Tax Repeal Act in Congress. We are available to answer any questions and review your estate planning documents to ensure they accurately reflect your wishes under the proposed law.

February 25, 2025

Estates and Trusts

Not Keeping Records of Your Purchases and Sales, Location, and Authentication Documents – Implications of Restrictions and Patrimony

This is Part 7 in a Series of the Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients. The provenance of any item is essential to determining its value. Proper documentation of an item’s history and proof of chain of title help establish authenticity, ensuring the highest fair market value at the time of sale. It also prevents clients from wasting money on items later found to be inauthentic. A complete record of an item’s history and chain of title should include the item’s current location and any restrictions on selling or moving the item. This is particularly important when the asset holds historical significance, and the client plans to transfer items between jurisdictions with high taxes on the sale or use of art and collectibles. Understanding the limitations of an item’s sale or transfer can be crucial. Limitations on the use of artwork, as well as patrimony claims often affect the value of an item. For example, in the Estate of Ileana Sonnabend case, Ms. Sonnabend, an art dealer, owned Robert Rauschenberg’s Canyon, a collage featuring a stuffed bald eagle. Federal laws prohibit the possession or trafficking of bald eagles, dead or alive, making the artwork unsellable – although Ms. Sonnabend’s gallery had received a permit allowing the work to be loaned and exhibited during her lifetime. On the federal estate tax return filed for the estate, Canyon’s value was reported as zero. The IRS Art Advisory Panel challenged the valuation, asserting a $65 million fair market value under the assumption that it could be sold on the illicit market to "a recluse billionaire in China." After litigation, the estate resolved the issue by making a long-term loan of Canyon to MoMA in New York City, receiving a full charitable deduction for its full value. Many nations and communities advocate for the return of artworks that hold historical, spiritual, or national significance, arguing that these pieces were taken under coercive or unethical conditions. Patrimony claims often center on the rightful ownership and cultural heritage of works that have been displaced, looted, or unlawfully acquired. Museums and private collectors frequently face both legal and ethical dilemmas when addressing repatriation demands. The most high-profile case involves the Elgin Marbles—renowned Greek sculptures removed from the Parthenon in Athens and currently housed in the British Museum. A UK parliamentary inquiry in 1816 concluded that Britain had legally acquired the Marbles. However, in 2000, the Greek government, in anticipation of the opening of the new Acropolis Museum in Athens, formally requested their return. In 2013, Greece sought UNESCO’s mediation between the Greek and UK authorities regarding the Marbles’ return, but both the UK government and the British Museum rejected UNESCO's offer to intervene. In 2021, UNESCO asserted that the UK had an obligation to return the Marbles and called on the UK government to begin negotiations with Greece. Despite these developments, the controversy remains unresolved. At the Parthenon Museum in Athens, a portion of the original Marbles are on display with white casts held in place of the Marbles, which are still currently on display at the British Museum. While not every client owns artwork as unique as Canyon or the Elgin Marbles, understanding the nuances of a client’s collection is essential for proper representation and estate planning.  Every client should keep clear and accurate records that include the acquisition date of each item, its location, and any restrictions on its use.

February 18, 2025

Estates and Trusts

Not Realizing the True Value of “Stuff”

This is Part 6 in a Series of the Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients. For federal estate and gift tax purposes, transfers are valued at the “fair market value” of the asset on the date of transfer. One of the more common estate tax audit issues is the failure to properly report the value of items of tangible personal property on a decedent’s Form 706. Similarly, failing to properly account for the value of tangible personal property transferred by inter vivos gift may result in the audit of a client’s Form 709. Despite their upfront cost, in order to identify the true value of art and collectible assets, clients should obtain professional periodic appraisals. Appraisals serve many functions, including estate and gift tax reporting, such as establishing value for insurance purposes, establishing bidding parameters for assets at auction, obtaining loans with tangible personal property serving as collateral, and planning for future gifts.  For tax purposes, fair market value is defined as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts.” Although the most persuasive indication of fair market value is an actual contemporaneous sale of the property in question, in the absence of such a sale, an appraisal is typically required to establish the taxable value of the asset subject to transfer. Under current regulations, a reported gift of tangible personal property that exceeds $5000 in value must be substantiated by a qualified appraisal conducted by a qualified appraiser.  The Pension Protection Act of 2006 (the “Pension Act”) established new requirements for what it means to have a “qualified appraisal” for tax reporting purposes. A qualified appraisal must contain a declaration that the appraiser (i) understands that a substantial or gross valuation misstatement resulting from an appraisal of the value of the property that the appraiser knows, or reasonably should have known, would be used in connection with a return or claim for refund, may subject the appraiser to a civil penalty, and (ii) understands that an intentionally false or fraudulent overstatement of the value of the appraised property may subject the appraiser to civil penalty for aiding and abetting an understatement of tax liability.  A qualified appraisal of tangible personal property must contain the following:  a detailed description of the property;  the physical condition of the property;  the date or expected date of the contribution;  the terms of any agreement or understanding entered into or expected to be , entered into by or on behalf of the client that relates to the use, sale or other disposition of the property, including any restrictions on the use or disposition or reservations of rights conferred on anyone other than the donee and any earmarks for particular use;  the name, address and taxpayer id number of the appraiser;  a detailed description of the appraiser’s educational background and qualifications;  the date on which the property was valued;  the appraised fair market value of the property;  the method of valuation used to determine the fair market value;  the specific basis for the valuation; and  a description of the fee arrangement between the client and the appraiser.   A qualified appraisal is prepared by a qualified appraiser defined as an individual who:  has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in the regulations;  regularly performs appraisals for pay; and  meets other requirements that the IRS has prescribed in the regulations.  An individual cannot be a qualified appraiser with respect to any specific appraisal unless she:  demonstrates verifiable and passing professional or college level education and experience or earned a recognized appraiser designation from a generally recognized professional trade or appraiser organization or as part of an employee apprenticeship program or educational program; and  the education and experience is in valuing the property type being appraised.   In addition, the appraiser must make the following declaration: “I understand that my appraisal will be used in connection with a return or claim for a refund.  I also understand that, if there is a substantial or gross valuation misstatement of the value of the property claimed on the return or claim for refund that is based on my appraisal, I may be subject to a penalty under section 6695A of the Internal Revenue Code, as well as other applicable penalties.  I affirm that I have not been at any time in the three-year period ending on the date of the appraisal barred from presenting evidence or testimony before the Department of the Treasury or the Internal Revenue Service pursuant to 31 U.S.C. 330(c).” If the appraisal or the appraiser does not meet all of the above requirements, the resulting valuation report will not be considered as any evidence of value, and the IRS will conduct its own appraisal to determine the fair market value of the asset subject to transfer.  In certain instances, providing the IRS with an appraisal that adheres to all of the requirements of the Pension Act may not help with avoiding an estate or gift tax audit, but provides a powerful bargaining tool. For example, regardless of the asset composition of the remainder of the estate, if a decedent dies owning artwork that has a claimed value of $50,000 or more, the appraisal will be subjected to consideration by the IRS Art Advisory Panel, comprised of a body of art industry experts who review and evaluate the acceptability of artwork appraisals submitted by taxpayers in support of claimed fair market value. When a qualified appraisal is submitted, you and your client may find that the IRS is more willing to compromise on valuation issues.

February 11, 2025

Estates and Trusts

Not Hiring a Qualified Appraiser and Realizing the True Value of Art and Collectibles

This is Part 5 in a Series of the Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients. For federal estate and gift tax purposes, transfers are valued at the “fair market value” of the asset on the date of transfer. One of the more common estate tax audit issues is the failure to properly report the value of items of tangible personal property on a decedent’s federal estate tax return. Similarly, failing to properly account for the value of tangible personal property transferred by inter vivos gift may result in the audit of a federal gift tax return. Despite the upfront cost, professional periodic appraisals should be obtained to identify the true value of art and collectible assets. Appraisals serve many functions, in addition to those relating to estate and gift tax reporting, such as establishing value for insurance purposes, establishing bidding parameters for assets at auction, obtaining loans with tangible personal property serving as collateral, and planning for future gifts. For tax purposes, fair market value is defined as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts.” Although the most persuasive indication of fair market value is an actual contemporaneous sale of the property in question, in the absence of such a sale, an appraisal is typically required to establish the taxable value of the asset subject to transfer. Under current regulations, a reported gift of tangible personal property that exceeds $5000 in value must be substantiated by a qualified appraisal conducted by a qualified appraiser. The Pension Protection Act of 2006 (the “Pension Act”) established new requirements for what it means to have a “qualified appraisal” for tax reporting purposes. A qualified appraisal must contain a declaration that the appraiser understands that a substantial or gross valuation misstatement resulting from an appraisal of the value of the property that the appraiser knows, or reasonably should have known, would be used in connection with a return or claim for refund, may subject the appraiser to a civil penalty, and understands that an intentionally false or fraudulent overstatement of the value of the appraised property may subject the appraiser to civil penalty for aiding and abetting an understatement of tax liability. A qualified appraisal of tangible personal property must contain the following: A detailed description of the property. The physical condition of the property; The date or expected date of the contribution. The terms of any agreement or understanding entered into or expected to be, entered into by or on behalf of the client that relates to the use, sale or other disposition of the property, including any restrictions on the use or disposition or reservations of rights conferred on anyone other than the donee and any earmarks for particular use. The name, address and taxpayer identification number of the appraiser. A detailed description of the appraiser’s educational background and qualifications The date on which the property was valued. The appraised fair market value of the property.  The method of valuation used to determine the fair market value. The specific basis for the valuation.  A description of the fee arrangement between the client and the appraiser.   A qualified appraisal is prepared by a qualified appraiser defined as an individual who: Has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in the regulations Regularly performs appraisals for pay. Meets other requirements that the IRS has prescribed in the regulations. An individual cannot be a qualified appraiser with respect to any specific appraisal unless she demonstrates verifiable and passing professional or college-level education and experience or earned a recognized appraiser designation from a generally recognized professional trade or appraiser organization as part of an employee apprenticeship program or educational program as well as the education and experience in valuing the property type being appraised.  If the appraisal or the appraiser does not meet all the above requirements, the resulting valuation report will not be considered as any evidence of value, and the IRS will conduct its own appraisal to determine the fair market value of the asset subject to transfer. In certain instances, providing the IRS with an appraisal that adheres to all the requirements of the Pension Protection Act may not help with avoiding an estate or gift tax audit, but provides a powerful bargaining tool. For example, regardless of the asset composition of the remainder of the estate, if a decedent dies owning artwork that has a claimed value of $50,000 or more, the appraisal will be subjected to consideration by the IRS Art Advisory Panel, comprised of a body of art industry experts who review and evaluate the acceptability of artwork appraisals submitted by taxpayers in support of claimed fair market value. When a qualified appraisal is submitted, you and your client may find that the IRS is more willing to compromise on valuation issues.

February 4, 2025

Estates and Trusts

The Impact of Transgender Executive Order on New York Residents

On January 20th, President Trump issued an executive order entitled “Defending Women from Gender Ideology Extremism and Restoring Biological Trust to the Federal Government.”  The executive order included provisions for the limitation of two gender markers – male and female -- on United States passports. The passport gender marker limitation is not retroactive but will only apply to issuing new passports and renewing existing passports. The order would force changes to federal documents, including new and renewed passports, visas, and Global Entry cards, and would require trans inmates to be removed from areas in federal prisons that align with their gender identity. It also rescinds the Biden-era executive order that allowed trans individuals to serve in the military. Almost immediately after the announcement, transgender advocacy organizations began receiving frantic calls from members of the transgender community, fearing that the executive order could lead to the inability to change identification documents to conform to one’s gender identity, as well as fears of physical harm. New York is one of several states that have enshrined the protection of gender identity in its constitution. Substantial pushback on the executive order is anticipated at the federal and state levels. If you are a member of the trans community and were born in New York City and/or the State of New York, you should still be able to change your name and state-issued identity documents to properly align with your gender identity. If you have not already done so, you should start the process of changing your legal name and state-issued identification documents. Various organizations, including A4TE and Lambda Legal, offer assistance with these processes.  Along with your state-issued identification documents, you should make sure that your estate planning documents, including wills, trusts, powers of attorney, health care proxies, and designations of agents for the disposition of your remains, are in order and properly reflect your gender identification. Selecting the proper agents who will fulfill your wishes with respect to your health care and bodily remains is equally important. 

January 30, 2025

Estates and Trusts

Not Maintaining an Up-to-Date Inventory of Art and Collectibles for Estate Planning

This is Part 4 in a Series of the Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients. A well-organized inventory is essential for effectively managing and planning the distribution of collectibles, including art. Clients may struggle to track their assets without an inventory, making future distribution and estate planning significantly more challenging. Maintaining an inventory can be as simple as using a basic spreadsheet or, for larger collections, leveraging specialized inventory management software. Regardless of the method, a comprehensive inventory should include: Size, materials, and description of items, as well as photographs of each individual item. A system for recording purchases and sales, including transaction dates and parties involved. Documentation of loans and gifts, specifying recipients and terms, as well as the location of items. Records of appraisals and insurance coverage. Logs of damages and losses. Keeping an up-to-date inventory also helps track each item's provenance, which is critical for authentication and valuation, particularly in the event of a sale. Maintaining an inventory of copyrights is just as important for clients who are also artists or creators. These intellectual property rights may have been licensed for specific periods or may require a distinct distribution plan separate from the original works upon the artist’s passing. Ensuring these details are well-documented can prevent legal complications and preserve the creator’s legacy.

January 28, 2025

Estates and Trusts

The Hidden Cost of Failing to Plan

The Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients Mistake #3:  The Hidden Cost of Failing to Plan Art and collectibles, while beautiful and culturally significant, can pose significant estate planning challenges. At the time of death, these assets are subject to estate taxes based on their fair market value. Without proper planning, federal and state estate taxes—combined with the costs of selling the assets—could erode over 50% of a collection’s value. Art, as an alternative investment, began emerging in the 1970’s and has only boomed as a result of digitalization. Art as a profitable investment now consistently outperforms other asset classes such as the FTSE 100 and S&P 100.  According to 12 Wall Street Journal article, "The Art of Passing Along Art," highlights an unexpected problem faced by many collectors, particularly those who acquired their art in the 1950s and 1960s. These octogenarian collectors are discovering that their art collections have appreciated significantly more than their liquid assets. As a result, their estates often lack sufficient liquidity to cover estate tax obligations. For example, consider a New York estate with $40 million in liquid assets and $100 million in art. That New York estate will potentially incur a $63.5 million tax bill, forcing the executor to sell some or all of the art within nine months to satisfy the obligation. Such rushed sales often lead to undervalued transactions, significantly reducing the collection's realized value. In extreme cases, the entire collection might be sold for a fraction of its worth simply to meet the estate's federal and state tax liabilities. Strategic Solutions for Collectors Fortunately, there are various strategies to reduce the estate tax burden on art and collectibles. These include: Charitable Contributions: Using art to fulfill philanthropic goals can provide both estate tax relief and personal fulfillment. Lifetime Gifting: Strategic gifting of art during the collector's lifetime can shift value outside the taxable estate. Estate-Freezing Techniques: These methods help move highly appreciated (or soon-to-appreciate) assets out of the taxable estate. Moving the Collection out of state: Using limited liability companies and other entities can eliminate the potential for state estate taxes by changing the location of the assets. When considering these options, it’s essential to evaluate whether the collection holds more value as a cohesive whole or as individual pieces. Each strategy should be tailored to the collector's goals, ensuring that both financial and sentimental value are preserved for future generations.  Make sure you speak with a trusted estate planner who specializes in planning for large collections of art and other intangible assets.

January 21, 2025

Adopting the Moving Van Approach

The Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients Mistake #2: Adopting the Moving Van Approach When it comes to estate taxes, the Internal Revenue Service (IRS) expects all tangible personal property to be properly reported on Schedule F of Form 706. This includes any valuable assets such as art collections, antiques, or other collectibles owned by the decedent. Failing to report or undervaluing these items is a common audit trigger and can turn what might have been a clean estate tax return into a costly investigation. But what happens when a client suggests they intend to "make their valuable art collection disappear" to avoid estate tax inclusion? A Word of Caution No Statute of Limitations on Tax Fraud Tax fraud—including estate tax fraud—is not bound by a statute of limitations. If an art collection or other personal property goes unreported on Form 706, the IRS retains the authority to pursue unpaid taxes, interest, and penalties indefinitely. Moreover, these liabilities can extend to the decedent’s heirs, potentially creating financial and legal challenges for the next generation. Impact on Provenance and Marketability Beyond tax considerations, failing to accurately value and report an art collection can undermine its provenance. Provenance—the documented history of ownership—is critical for determining an item's authenticity and value in the marketplace. Without proper documentation, including accurate estate tax filings, selling items at their fair market value can become difficult, if not impossible. Practical Advice It's essential to educate clients on the long-term consequences of attempting to sidestep estate tax obligations. Transparency and compliance not only minimize audit risks but also preserve the integrity and marketability of valuable collections for future transactions. By taking a proactive and informed approach, you can guide clients toward strategies that align with both their financial goals and legal responsibilities.

January 15, 2025

Estates and Trusts

Not Knowing the Tax Implications of How Your Client is Classified

The Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients Mistake #1: Not knowing the tax implications of how your client is classified Navigating the tax landscape for art dealers, investors, and collectors can be a complex endeavor, but proper classification is key to maximizing tax savings and avoiding pitfalls. Professionals working with clients in the art world must understand how classifications affect income tax treatment, as well as practical steps to ensure clients benefit from the most favorable outcomes. This guide outlines the critical distinctions, tax implications, and actionable strategies to support clients. Understanding the Classifications The IRS recognizes three primary classifications for individuals engaged in art-related activities: dealers, investors, and collectors. Each carries distinct tax implications: Dealers: These individuals are in the trade or business of buying and selling art for profit. To be classified as a dealer under Internal Revenue Code Section 1221(a)(1), a client must demonstrate continuity and regularity in their activities and a primary purpose of generating income or profit. For example, an artist selling their own creations may qualify as a dealer. Investors: Clients who buy and sell art primarily for investment purposes fall under this category. Unlike dealers, investors do not actively market art as part of a trade or business but instead hold it as a capital asset Collectors: This classification applies to those who acquire art for personal enjoyment or aesthetic purposes. Collectors are not considered engaged in a business or investment activity and face the most restrictive tax treatment. Tax Implications The tax treatment of gains, losses, and deductions varies significantly depending on classification: Dealers: Gains are treated as ordinary income, taxed at rates up to 37%. Losses are ordinary losses, fully deductible against other income. Expenses incurred in the trade or business, such as storage or marketing, are deductible as ordinary and necessary business expenses on Form 1040. Note: For artists classified as dealers, the basis of their artwork is typically limited to the costs of their materials, often resulting in significant gains upon sale. Investors:Gains on the sale of collectibles are taxed as capital gains, subject to a maximum rate of 28%. Losses are capital losses, deductible against capital gains, with a $3,000 annual limit for net losses against ordinary income. Ordinary and necessary expenses for holding the art for income production are deductible. Collectors:Gains are taxed at the same 28% capital gains rate as investors. Losses are considered personal and cannot offset other income. Expenses related to collecting activities are generally nondeductible unless the client can demonstrate an investment intent. Practical Steps for Professionals Helping clients achieve the most advantageous classification involves careful analysis and documentation. Here are actionable strategies: Identify the Appropriate Classification: Evaluate the client’s level of activity, intent, and historical practices. Consider whether the client’s actions align with IRS criteria for a trade or business (e.g., continuity, regularity, and profit motive). Document Investment Intent:For collectors seeking reclassification as investors, gather evidence such as:Businesslike records of transactions. Consultation with art experts or advisors. Efforts to publicly display the collection. A history of profitable investments in similar areas. Educate Clients on Tax Treatment:Explain the impact of classification on their tax liabilities, including applicable rates and deduction limits. Highlight the importance of meeting the profit presumption test (three profitable years out of five) for activities presumed to be for profit. Leverage Deductible Expenses:For dealers and investors, ensure all ordinary and necessary expenses, such as insurance, storage, and advisory fees, are properly documented and claimed. For collectors, explore opportunities to demonstrate investment intent for potential reclassification. Monitor Changes in Activity:Reassess clients’ classifications periodically as their circumstances and activities evolve. A client who begins as a collector may transition to an investor or dealer over time with proper adjustments to their approach. Conclusion Proper classification of collectible and art-related activities can have a significant impact on a client’s tax liabilities, deductions, and overall financial outcomes. Professionals who understand these distinctions and proactively guide clients can unlock substantial tax savings and help avoid costly errors. By identifying the appropriate classification, documenting intent, and leveraging allowable deductions, you can ensure your clients are well-positioned to navigate the complex intersection of art and taxation. For tailored advice and support, consult a tax professional experienced in the unique considerations of art-related activities.

January 7, 2025