New York residents who are preparing their estate plans should not neglect to value their artworks correctly. By and large, art does not produce any revenue until it is sold, and it can be difficult to place an accurate value on paintings and other works because the among will usually change in keeping with prevailing market conditions. However, failing to do so can result in a dispute with the Internal Revenue Service.
One example occurred when an art collector owned three particularly valuable pieces by Pablo Picasso, Robert Motherwell and Jean Dubuffet. The owner died in 2009, and the Picasso sold at an auction for $12.9 million a year later, a price that was more than twice what had been set by the auction house. However, the estate valued the painting at $5 million on its 2009 estate tax return . The IRS thought that the Picasso and the other two paintings were all worth more than the value the estate had assigned them. It sent experts to assess the paintings’ value, and they valued all three of them at a higher price, with the Picasso being valued at $10 million. A formal Notice of Deficiency was issued to the estate by the IRS, and the case reached the U.S. Tax Court.
The court agreed that the state of the art market was worse in 2009 than in 2010, but it still sided with the higher assessment by the IRS for the Picasso, although it was lower than the painting sold for in 2010. However, the court sided with the estate with respect to the value of the other two paintings.
The value of certain types of assets that are contained in an estate often change after the estate plan is made. This can occur with art, but it can also occur with other investments as well. It is important that both the owner and the executor or administrator have a good sense of the current value of the assets for tax and estate administration purposes.
New York music fans were likely saddened on Jan. 10 when the world’s media began to report that David Bowie had died of cancer. Bowie was a powerful force in rock music, and his remarkable career featured numerous classic albums. Entertainers were awed for decades by Bowie’s ability to constantly reinvent himself and explore his musical boundaries, but financial experts say that his savvy financial mind and prudent estate planning decisions may be just as impressive.
Bowie’s reputation for thinking creatively about money stems from a decision he made in 1997. He had struggled financially for years, but he was reluctant to raise money by selling his catalog of hits. Other artists had taken this path and had lived to regret it when they saw soaring royalty payments go to the new owners of their songs. Bowie’s solution was to issue $55 million in bonds backed by his royalties and copyrights. The 10-year bonds paid a fixed rate of return and were snapped up by the Prudential Insurance Company. Bowie was praised for raising the money he needed while retaining ownership of his valuable intellectual property.
The way that Bowie approached financial and estate planning matters could serve as an example to other entertainers. Many have died with little or no estate planning in place, and their grieving heirs were dragged into bitter legal disputes as a result.
Financial experts feel that details of Bowie’s estate plan are unlikely to be disclosed to the public. They believe that Bowie created revocable or irrevocable trusts to protect his family from the public glare of the probate process. Attorneys with estate administration experience could explain how using trusts in this way also allows greater control over how assets are distributed and may reduce exposure to taxes.
One of the reasons that New York residents might choose a revocable trust instead of an irrevocable trust for handling their estate planning needs is that irrevocable trusts are traditionally ineligible for changes. Irrevocable trusts have also traditionally included very limited oversight by just one or two trustees. However, flexibility available for modern trust planning makes it possible to achieve a customized plan based on one’s goals, beneficiaries and possible future needs with a more customized approach to oversight.
Trust assets can be affected by state tax laws, which makes the idea of change in situs an important option in planning. This may make it easier to change the location of the trust in the future if tax conditions warrant such a move. People might find that their goals for the trust change, which makes decanting, which is the ability to pour one trust into another, an important consideration. Although a number of states permit this action, it is better to build this potential need into the trust. Meanwhile, people who are considering the creation of an irrevocable trust might be more confident about using this avenue to minimize the tax impact on their assets when they realize that there is flexibility.
In place of one or two trustees, newer trusts often have multiple individuals appointed for the oversight of different elements of the plan. An administrative trustee handles the task of managing records and filing required tax returns. Another trustee might be appointed as a protector, holding the power to fire a trustee and make a replacement. This can be helpful for ensuring that assets are properly handled.
People who have modest estates might wonder whether an irrevocable trust is appropriate for their needs. It may be helpful for them to meet with an estate planning attorney and learn more about the various types of trusts to ensure that an appropriate choice is made.
Wills written by New Yorkers aren’t always probated as smoothly as possible following the deaths of the testators. In some cases, survivors and beneficiaries get into legal spats over the validity of wills and other estate documents. Valid concerns such as potential fraud, the mental state of the testator or the existence of other wills can all be used to initiate disputes that impact the process of distributing the testator’s property.
In some instances, beneficiaries feel that certain individuals used undue influence to manipulate or even bully testators into writing wills that benefit them unjustly. These parties may employ numerous techniques to obtain will terms that work to their advantage, such as restricting access to a weakened, dying individual or convincing them that other potential beneficiaries bear them ill will. Such actions can jeopardize otherwise amicable family relationships, make it harder to come to terms with tragic loss and impede the correct execution of a will.
Because lost wills, incorrect estate administration and improper will execution can all lead to unjust outcomes, most courts have established mechanisms by which people can dispute wills. When wills go through probate to have their validity confirmed before property is distributed, beneficiaries can choose to negotiate or litigate in order to protect their due entitlements.
Will disputes can be complex, so it’s important that they’re managed properly. Failing to negotiate terms that everyone can agree on could seriously delay the distribution of estate assets or benefits, and entering litigation without an appropriate plan may result in legal expenses that cut into the costs of any benefits you ultimately receive. For more information on how to ensure all beneficiaries receive equitable proceeds after losing their loved ones, visit our page on will contests .