Inheritaged Art

[cabrzama]

What is the name of your state? Utah

Hello, my uncle passed away last fall. Among the items he left his siblings were some paintings that may or may not be worth a lot of money. They were done by a famous artist, but were unsigned and not among her noted work. We have received rough estimates of everything from $500 each up to over $100,000 each.

There are three siblings of my uncle alive who sorted out his estate late last year. One of them made a couple of small attempts to sell the paintings, but couldn't before the attorney closed the books on the estate. She said it was too much hassle for her. Her thought was to simply trash them, but my dad (one of the other three) said "no. I will see what I can do with them." His sister agreed and said he could keep whatever he could make on them. The third person (another sister) thinks her sister simply trashed them and that they are no more.

I've read that if my dad sells them, he owes the IRS a 28% tax because they were inherited. What if he were to gift them to me (his son) and then I were to sell them??? To me, they would be a gift and not an inheritance. Would the IRS consider them an inheritance and require me to pay the 28%???

Secondly, if my dad gifts them to me. Am I under any legal obligation to share the profits with my dad and his two sisters??? Sounds like a good problem to have, but it's still stressful to sort out! Plus I didn't want to have to hire an attorney, but perhaps I will end up needing one.

[LdiJ]

Originally Posted by cabrzama

What is the name of your state? Utah

Hello, my uncle passed away last fall. Among the items he left his siblings were some paintings that may or may not be worth a lot of money. They were done by a famous artist, but were unsigned and not among her noted work. We have received rough estimates of everything from $500 each up to over $100,000 each.

There are three siblings of my uncle alive who sorted out his estate late last year. One of them made a couple of small attempts to sell the paintings, but couldn't before the attorney closed the books on the estate. She said it was too much hassle for her. Her thought was to simply trash them, but my dad (one of the other three) said "no. I will see what I can do with them." His sister agreed and said he could keep whatever he could make on them. The third person (another sister) thinks her sister simply trashed them and that they are no more.

I've read that if my dad sells them, he owes the IRS a 28% tax because they were inherited. What if he were to gift them to me (his son) and then I were to sell them??? To me, they would be a gift and not an inheritance. Would the IRS consider them an inheritance and require me to pay the 28%???

Secondly, if my dad gifts them to me. Am I under any legal obligation to share the profits with my dad and his two sisters??? Sounds like a good problem to have, but it's still stressful to sort out! Plus I didn't want to have to hire an attorney, but perhaps I will end up needing one.

No, he would not have a 28% tax rate. He would pay capital gains tax on the difference between his basis (whatever they were worth the day your uncle died) and the sales price. That would likely be 15% The same would apply to you if your dad turned around and gifted them to you.

[anteater]

Originally Posted by cabrzama

What is the name of your state? Utah

I've read that if my dad sells them, he owes the IRS a 28% tax because they were inherited. What if he were to gift them to me (his son) and then I were to sell them??? To me, they would be a gift and not an inheritance. Would the IRS consider them an inheritance and require me to pay the 28%???

No, inheriting has nothing to do with the 28% tax rate. That is the maximum capital gains tax rate on collectibles, whether inherited or not.

I would say that your, or your Dad's, problem is establishing a cost basis. That would normally be the value of the artwork on your uncle's date of death. Didn't the attorney for the estate (was the attorney the executor?) get an appraisal to use for the estate's inventory and determining if any estate tax was due? Especially considering that the rough estimates are so divergent?

[abezon]

What a mess!

First, the executor has a duty to all heirs to obtain the best value for the estate assets. That means getting a qualified appraisal of the paintings & either selling them or netting them against any cash when she distributes them. It does not mean trashing paintings that could be worth as much as a house! It sounds like the executor failed to do that, & if the paintings are worth more than the $500 low end, the other heirs could sue her for giving the paintings to your dad. This would drag your dad into litigation & create tension at family reunions, unless your dad either agrees to share any proceeds OR he gets written, signed releases from all heirs stating that they understand the paintings could be worth anywhere between $500 & $100,000 each, and they are willing to let your dad have any proceeds from sale. He should definitely give them time to consult an attorney of their own.

That said, your dad needs to go out & get a qualified appraisal of those paintings NOW. This will establish his basis in the paintings. If the appraisal is high & he did not get releases beforehand, he should notify the executor & other heirs & see what they want to do.

If/when he sells the paintings, his taxable gain is the difference between the value of the paintings when he inherited them & whatever he gets for them, less costs of sale (auction fees, gallery cut, appraisal costs).

Since little time has passed, a current appraisal should be sufficient to establish date-of-death value, unless this artist's work has gone up significantly in the last months. The appraiser should know. BTW, don't just hire any old appraiser. Hire one who is familiar with this artist's work & can back up the paintings' provenance (origin). Then you'll have 2 sources when selling the paintings as the work of ______, the assertion of the purchaser & the appraiser's opinion.

If your father gives you the paintings, you need to get the appraisals done, as you get his basis.