Art, something that not only brings much beauty and joy to our lives, is fast becoming an investment opportunity and one that needs careful consideration when it comes to your estate planning. Alfie Bester, Director at Legacy FS, answers some of the questions around this topic.
How does art impact on your estate planning?
Firstly, you must know the (potential) value of your collection as the market value (as at date of death)of your collection (as with any other asset class) will add to the net value of your estate and be subject to estate duty at a flat rate of 20%.
Secondly, determine whether your estate has the requisite liquidity to cater for any potential estate duty as you do not want your executor and heirs being forced sellers of part of the collection to cater for duties and costs. Art is not a “liquid” asset.
Should it materialise that some art pieces have to be sold to render sufficient liquidity in your estate, assuming you do not want any other assets to be sold, you could stipulate in your will which of the more important core pieces are to be retained as a preference and which ones are to be sold.
Is there a benefit of holding art as an alternate store of wealth?
Indeed. Death is a deemed capital gains tax event. Provided however that you are not a dealer in art, the increase in the value of your art collection over time will not be subject to capital gains tax on death as is the case with your other assets (there are a few exceptions such as the first R2 million of the gain on a primary residence) . This is also the case if you sell art during your lifetime.
How can I mitigate against the incidence of estate duty should I own a valuable art collection?
The Estate Duty Act provides that the value of books, pictures, statutory or other objects of art shall be exempt from estate duty provided it (and this could apply to certain select items) have been lent under a notarial deed to any State or local authority within the Republic for a period of not less than thirty years, and the owner dies during this period. This creates a planning opportunity whereby the art collection (or the part so lent under the notarial lease) will be returned to your heirs/family at the end of the lease period.
Can I donate my art or a portion thereof during my lifetime?
Yes you can but such a donation has to be declared to the tax authorities. Should the value of the donation exceed one hundred thousand Rand, donations tax at a flat rate of 20% will be payable on the value in excess of the said amount. Every person can make an annual donation of one hundred thousand Rand without incurring donations tax in terms of current legislation.
Can a testamentary or an inter vivos trust hold art?
Yes it can. it is important to bear in mind that should a trust dispose of art (sale, donation or award to a beneficiary), such an action will give rise to a capital gains tax event since the exemption only applies if held by a natural person (personal use asset exemption).
Can art be remitted to a beneficiary who is not a South African resident?
Yes it can. The process and exchange control formalities are quite simple if it is an inheritance or eventual award from a testamentary trust. The process is a bit more complex if the award is from an inter vivos trust. The remittance abroad of certain works of art may require clearance/consent from the South African Heritage Resources Agency in terms of the provisions of the National Heritage Resources Act who may impose restrictions or conditions on the export.
Do you have art in your portfolio, do you need help understanding the impact on your estate planning, contact Legacy FS the leaders in Independent Estate Planning.