(You can read part two of Don’t Ignore Your Estate Planning here.)
Estate planning is easy to overlook until it’s too late. However, you should be concerned about the potential taxes on your estate that your heirs could have to pay after you have already paid income taxes throughout your life to accumulate your assets.
For example, heirs of a wealthy art dealer were left a $65 million sculpture that might be more trouble than it’s worth. Illeana Sonnabend, who died in 2007, left an art collection worth an estimated $1 billion to her heirs. But one item in particular, Robert Rauschenberg’s “Canyon” came with a $29 million estate-tax bill. Often times, the assets can be sold to foot the estate-tax bill, but because the piece includes a stuffed eagle, it can’t be sold to pay the taxes.
Federal law makes it a crime to possess, transport or sell a bald eagle, whether it is alive or stuffed. Sonnabend got a waiver from the U.S. Fish and Wildlife Service in 1981 that allowed her to keep the “Canyon” piece, considered a masterwork of 20th century art.
Sonnabend died in 2007. The estate tax at the time stood at 50% on estates above $1 million. Placing a value on an item that can’t be sold is no easy feat. Christie’s auction house placed the value of “Canyon” at zero. However, the IRS initially put it at $15 million, then bumped the value to $65 million when the beneficiaries refused to pay the tax. The IRS is not only demanding $29 million in taxes on the piece of art but is also assessing an $11.7 million “gross valuation misstatement” penalty.
The beneficiaries have already paid $471 million in estate taxes on the other items in Sonnabend’s art collection and has been forced to sell roughly $600 million worth of art just to cover those taxes.
Although an extreme example, this real-life story sends us a clear message: poor planning can leave a mess for your heirs. Don’t ignore your estate planning. Remember, it is not a question of if I die, but when. Don’t wait. Do it now.
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