Charitable giving pièce de résistance: Artwork donations

Charitable giving is a key part of estate planning for many people. If you’re among them and own valuable works of art, they may be ideal candidates for charitable donations during your life.

Generally, it’s advantageous to donate appreciated property because, in addition to gaining a valuable tax deduction, you can avoid capital gains taxes. Because the top capital gains rate for art and other “collectibles” is 28%, plus state income taxes, donating art can be particularly effective.

5 tax-saving tips
If you’re considering donating art, here are five tips that can help you maximize your tax savings:

  1. Obtain an appraisal. Most art donations require a “qualified appraisal” by a “qualified appraiser.” IRS rules contain detailed requirements about the qualifications an appraiser must possess and the contents of an appraisal. IRS auditors are required to refer all gifts of art valued at $50,000 or more to the IRS Art Advisory Panel. The panel’s findings are the IRS’s official position on the art’s value, so it’s critical to provide a solid appraisal to support your valuation. There is also a procedure to obtain a Statement of Value from the IRS.
  2. Donate to a public charity. To maximize your charitable deduction, donate artwork to a public charity, such as a museum or university with public charity status. These donations generally entitle you to deduct the artwork’s full fair market value (provided the related-use rule is also satisfied). If you donate art to a private foundation, your deduction will be limited to your cost. There are also percentage limitations on your deduction based upon your adjusted gross income (AGI), which in the best of circumstance is deduction up to 50% of your AGI.
  3. Understand the related-use rule. For you to qualify for a full fair-market-value deduction, the charity’s use of the donated artwork must be related to its tax-exempt purpose. So, for example, if you donate a painting to a museum for display or to a university for use in art history research, you’ll satisfy the related-use rule. But if you donate it to, say, an animal shelter to auction off at its fundraising event, you won’t satisfy the rule and your deduction may be limited to your cost basis.
  4. Transfer the copyright. If you own both the work of art and the copyright to the work, you must assign the copyright to the charity to qualify for a charitable deduction.
  5. Consider a fractional donation. If you’re not ready to give up your artwork but are willing to part with it temporarily, consider donating a fractional interest. This allows you to generate tax savings while continuing to enjoy your art for part of the year. For example, if you donate a 25% interest in your art collection to a museum, the museum receives the right to display the collection for three months of each year. You deduct 25% of the collection’s fair market value immediately and continue to display the art in your home for nine months of each year.

Leave it to the professionals
The rules surrounding donations of art are complex. We can help you achieve your charitable goals while maximizing your tax benefits whether you wish to donate artwork or other valuables.

Northern Virginia Magazine Recognizes SmolenPlevy Attorneys as ‘Top Lawyers’

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Northern Virginia Magazine names SmolenPlevy principals Jason Smolen, Alan Plevy, Daniel Ruttenberg and Kyung (Kathryn) Dickerson to its ‘Top Lawyers’ list for 2016. Nominated by their peers, the award recognizes SmolenPlevy for its excellence in the areas of family law, business organization, and trusts and estates.

Smolen, Plevy, Ruttenberg and Dickerson have previously been named ‘Top Lawyers’ by Northern Virginia Magazine in 2010, 2013 and 2015.

SmolenPlevy Named to 2017 “Best Law Firms”

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SmolenPlevy is honored to announce the firm’s inclusion in the 2017 “Best Law Firms” list, published by U.S. News & World Report and Best Lawyers. SmolenPlevy is recognized for its outstanding work in the areas of family law, business organizations, and trusts and estates. Firms included in “Best Law Firms” are honored for professional excellence with persistently impressive ratings from clients and peers.

The “Best Law Firms” ranking complements the 2017 edition of “The Best Lawyers in America,” where Jason Smolen, Alan Plevy and Daniel Ruttenberg are recognized. Jason Smolen is honored as Best Lawyers® 2017 Business Organizations “Lawyer of the Year” for Washington, D.C., and Alan Plevy and Dan Ruttenberg are named in the Best Lawyers® 2017.

The U.S. News & World Report – Best Lawyers 2017 Best Law Firms rankings are based on an evaluation process that includes the collection of client and lawyer evaluations, peer review from attorneys in the field, and review of additional information provided by law firms as part of the formal submission process.

Jason Smolen Selected as Best Lawyers® 2017 Business Organizations “Lawyer of the Year” for Washington D.C.

SmolenPlevy is pleased to announce that Co-Founding Principal Jason Smolen is honored as Best Lawyers® 2017 Business Organizations “Lawyer of the Year” for Washington, D.C. SmolenPlevy Co-Founder Alan Plevy and Principal Dan Ruttenberg, JD, CPA, LLM are also named in the Best Lawyers® 2017. Plevy and Ruttenberg were selected by other leading lawyers from the Washington, D.C. area in the categories of trusts and estates and family law, respectively.

The Best Lawyers in America© is the oldest peer-review publication in the legal profession. It recognizes attorneys in 128 practice areas from all 50 states and the District of Columbia. For each location and specialty, the individual attorneys with the highest peer-reviews are recognized as “Lawyer of the Year.”

The attorneys will be featured in the 23rd edition of Best Lawyers in America©, which will be published later this year.

Jason Smolen, Alan Plevy and Daniel Ruttenberg Listed in The Best Lawyers in America© 2016

2016 Best Lawyers

SmolenPlevy is pleased to announce that Jason SmolenAlan Plevy, and Daniel Ruttenberg have been included in the 2016 Best Lawyers in America. The attorneys will be listed in the 2016 edition of The Best Lawyers in America© in November.

Best Lawyers® is the oldest peer-review publication in the legal profession. It recognizes attorneys in 128 practice areas from all 50 states and the District of Columbia. Smolen, Plevy and Ruttenberg were selected for this honor by other leading lawyers throughout the United States in the fields of business organizations, family law, and trusts and estates, respectively.

Previously, Smolen, Plevy and Ruttenberg have been recognized as Top Lawyers by Northern Virginia Magazine and Power Players by SmartCEO Magazine.

On WUSA 9: Safeguarding Online Accounts After Death

In today’s digital and “paperless” age, it is hard staying on top of all our online accounts. However, it is important to keep record of “digital assets” as a part of your estate planning. On WUSA 9SmolenPlevy Principal Jason Smolen joins anchor Mike Hydeck to discuss tips for safeguarding the location and access information of your online accounts and social media.

Smolen suggests making a list documenting the login information for every online account you have and ensuring that there is a current paper copy of that list. After death, that paper list will inform your loved ones of what accounts exist. However, having the login information and passwords may not entitle beneficiaries to use your online accounts on behalf of your estate. Many service agreements and some federal laws prohibit others from using your accounts in your absence.

Preparing a list of online accounts is an important first step in protecting access to your digital assets. Smolen further suggests providing instructions on what to do with each account in the event of death.

Watch Smolen on WUSA 9 above.

NewsChannel 8: Jason Smolen’s Tips for Protecting Digital Assets

Traditionally, estate planning addresses one’s property and finances. Today, more and more people are looking to include their intangible assets like social media accounts, and online photos and videos in their wills. SmolenPlevy Co-Founding Principal Jason Smolen visits NewsChannel 8 to discuss the growing trend of protecting digital assets through estate planning on Let’s Talk Live.

Although laws regarding digital assets are evolving, Smolen says there are ways to ensure your online accounts and media are taken of upon your death. Some websites like Facebook have a feature that allows you to elect someone you’re “friends” with as your “legacy contact”.

For websites and services that haven’t caught on this feature, Smolen suggests going “old school” by designating who takes over each digital asset, and including a comprehensive list of all online accounts and login information in your will.

Digital information like downloaded music, video and books may not be considered assets after all, according to Smolen. Sometimes, purchasing art only means you’re only licensed to use the it while you’re alive.

Watch Smolen on Let’s Talk Live above.

Jason Smolen Shares Ways to Keep Inheritances from Unnecessary Taxation on MainStreet.com

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When estate planning, consider whether taxes will turn an inheritance into a burden for your beneficiaries. In a just-published article on MainStreet.comSmolenPlevy Co-founding Principal Jason Smolen discusses various tools used to transfer wealth while limiting the impact of estate taxes.

The federal estate tax exempts $5.43 million for individuals and $10.86 million for couples. However, 16 states and the District of Columbia impose state estate taxes of up to 20% on estates valued at more than a specified amount. For example, in Maryland, heirs may face an additional tax of 10% to 26% upon receiving their inheritance.

While Roth IRAs (which are exempt from income taxes) and trusts are ways to safeguard inheritance from taxes, Smolen suggests three other tools to consider:

  1. Gifting: Gifts to heirs before death reduce the size of an estate and can help it avoid additional estate or inheritance taxes. A person can gift up to $14,000 to an individual (or $28,000 with a spouse) each year without incurring a gift tax.
  2. Real Estate Transfers: Because real estate often represents a significant portion of the estate, a limited partnership to transfer property may be effective. Beneficiaries can be given shares in the limited partnership directly or in a trust.
  3. Life Insurance in a trust: If a policy is held by a trust that is set up outside of an estate, insurance proceeds are generally tax free.

Read the full article on MainStreet here.

Jason Smolen Discusses the Step Up Provision with MainStreet

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Traditionally, heirs have avoided taxes on increases in the value of a decedent’s portfolio assets. However, President Obama proposed ending of this provision, commonly referred to as the Step Up provision in the capital gains tax, during his State of the Union address in January. SmolenPlevy co-founding Principal Jason Smolen explains the implications of the proposal in a just published article on Mainstreet.com.

Under the proposal, the capital gains tax on inherited assets would only exempt the first $200,000 for a married couple and $100,000 for singles. The elimination of the “step up” provision could become an accounting challenge for heirs. “You would have to know what the deceased paid to acquire an asset to determine the original cost basis for all inherited assets,” Smolen tells MainStreet.

Although the end of “step up” is still just a proposal, there may be an increase in using life insurance policies as an estate planning tool. Smolen says insurance can be an add-on benefit that can reduce the frictional costs of taxes.

Read the full MainStreet article here.

In The Media: Jason Smolen Takes a Close Look at Proposed Changes to the Capital Gains Tax

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The proposal to end the “step up” provision in the capital gains tax could mean substantive changes in how inheritances are taxed. Just published, SmolenPlevy Co-Founding Principal Jason Smolen takes a closer look at the proposal in Wealth Management and MainStreet.

President Obama’s plan to close the “trust fund loophole” could affect more than just the rich. Any beneficiary would have to look up the original cost of just about any asset they inherit—causing them to spend time and money sorting out the financial details.

Without the “step up” provision, beneficiaries may need to set up additional trusts to protect their assets from increased taxation. Some people can transfer assets to trusts, which would take them out of the tax picture, or sell the assets entirely instead of passing on potentially huge tax bills to their heirs.

The proposal is a long way from reality, but its adoption will make estate planning more complicated, according to Smolen. Families may need additional professional advice from estate attorneys and accountants to devise a strategy to maximize assets and minimize taxes.

Read Smolen’s exploration of the proposed changes on WealthManagement.com and MainStreet.