Scott LaPresta, CTFA
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Key Highlights
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Assets that have sentimental value for you and your family present unique estate planning challenges. These sentimental assets or “passion assets,” may include art, collectibles, or other valuable personal property such as family heirlooms, vintage cars, or jewelry. Proactively creating a plan for succession, donation, or sale of these assets can help ensure your valuable personal property is handled in a way that honors both your personal wishes and financial objectives.
Determining the fair market value (FMV) of your sentimental assets
A crucial first step is to understand the fair market value of art, collectibles, or other valuable personal property, which will help you make informed decisions regarding the disposition of these assets.
If you bequeath your valuable personal property at death, the fair market value of your valuable personal property is necessary to accurately report the value of your estate for federal estate tax purposes. An appraisal by a qualified appraiser is required for art or collectibles you own valued at more than $3,000 when you pass away. A written statement from the executor of your estate regarding the completeness of the itemized list of personal property and the appraiser’s qualifications must be filed with your estate tax return (Form 706).
If you decide to gift your valuable personal property during your lifetime to an individual or donate it to a qualified charitable organization, you may need to report the fair market value of those assets for federal gift tax purposes or to receive an income tax deduction for a charitable donation. In such cases, the services of a qualified appraiser who meets IRS standards may be required.
Since determining the fair market value of illiquid or unique assets can be complicated and time-consuming, it may be prudent to proactively consult a wealth management team that can connect you to a qualified appraiser and help you better understand IRS requirements regarding valuations. Your wealth management team can also help you carry out your decisions regarding sentimental assets, factoring in the complexities of their emotional significance and financial value. These assets often hold deep personal meaning, making it essential to carefully consider how to best preserve your legacy while balancing the practicalities of estate planning and tax implications.
Considerations for bequeathing sentimental assets
When bequeathing valuable personal property at death, it is critical to document your instructions for what should be done with these assets. Otherwise, conversations surrounding who should receive which assets could become lengthy and difficult as family dynamics come into play.
Communicating with your family to determine which assets should stay in the family and to whom the assets should be bequeathed is the first step. Consider accounting for items that you suspect may have emotional value for you or your family members such as family heirlooms, personal mementos, or treasured pieces of art. Once you have established a succession plan for your valuable personal property, formally documenting the beneficiaries for each asset with an estate planning professional and any instructions to care for the inherited items is critical to incorporating these assets into your estate plan.
When your beneficiaries inherit your valuable personal property, the assets will likely receive a step-up in cost basis at your death. This means the original value of the asset is reset to the fair market value at the time of the owner’s death, which could mean a lower capital gains tax liability if appreciated assets are later sold by your beneficiaries. Capital gains taxes are especially relevant for assets like art and collectibles, as they are subject to a higher maximum long-term capital gains tax rate of 28% compared to the 20% top tax rate on other capital gains property like securities.
It is also important to consider the federal estate tax implications of transferring valuable personal property at death. Such transfers consume a portion of your lifetime estate and gift tax exemption, which determines how much value an estate can transfer without incurring federal estate taxes.
The current exemption amounts are at an all-time high ($13.61 million for individuals in 2024 and $13.99 million in 2025), but the potential sunset of certain estate tax provisions may lower the exemption amount to $5 million as adjusted for inflation in 2026. If no new legislation is passed, it may be more tax-efficient to transfer your valuable personal property during your lifetime to take advantage of the historically high exemption amount before it is potentially reduced in the future.
Gifting sentimental assets during your life
When gifting valuable personal property during your life, it is important to consider the federal gift tax implications of such a transfer. Any gift valued in excess of the annual gift exclusion amount ($18,000 from an individual or $36,000 from a married couple in 2024; $19,000 and $38,000 respectively in 2025) given to an individual in a single calendar year consumes a portion of your federal lifetime estate and gift tax exemption or is subject to gift taxes if your exemption has already been fully used.
Gifting your sentimental assets to your family during your life may be less of an administrative burden than if you bequeathed those assets at death. This way, you can disperse the assets in a coordinated and controlled way to the intended recipients and resolve any disputes should they arise.
It may be sensible to have conversations with your beneficiaries regarding who gets a fair share of valuable personal property, since it may not be easily divisible among multiple beneficiaries. And if you have a substantial collection, it may be easier to forgo providing documentation for each item by gifting your valuable personal property during your life.
Note that gifted assets do not typically receive a step up in cost basis upon their transfer like the assets would if they were bequeathed at death. If your beneficiaries later sell gifted assets that have appreciated in value, it could lead to a higher capital gains tax liability.
Donating your valuable personal property to a qualified charitable organization
Donating valuable personal property like art or collectibles to a museum or other qualified charitable organization may provide an income tax deduction, eliminate the associated capital gains tax liability if the asset has appreciated in value, and/or lower the value of your taxable estate.
Generally, and with certain limitations, you can deduct the full fair market value of appreciated property that you have held for more than one year. You can also typically forgo paying capital gains taxes associated with an appreciated asset if you donate it to a qualified charitable organization.
The related use rule outlines criteria to receive the full fair market value deduction, otherwise, your deduction will be limited to the cost basis (or original purchase price) of the asset. To receive the full fair market value deduction, the property you donate must meet certain criteria and be related to the mission of the charitable organization. For example, you would probably not receive a full fair market value deduction if you donated art to a public charity whose charitable purpose is disaster relief, but you might receive a full fair market value deduction if you donated that same piece to a museum that showcases similar pieces. The annual charitable contribution deduction amount realized by the donor would still be subject to adjusted gross income limits with a carry forward for unused amounts.
Donating valuable personal property to a qualified charitable organization also removes the value of that asset from your taxable estate, which can lead to a lower estate tax liability.
Whether you are considering bequeathing your sentimental assets at death, gifting them during your life, or donating them to a charitable organization, doing so through a trust may offer estate planning benefits. Depending on the type of trust, this may include minimizing your federal estate tax liability, avoiding probate, protecting the assets from creditors, or controlling how and when your beneficiaries receive the assets. Consider consulting with your wealth management team to identify options for using trusts to accomplish your estate planning goals.
Selling your valuable personal property
If you decide to sell your valuable personal property, the proceeds from the sale may provide liquidity or otherwise support your estate plan by avoiding the complexities of bequeathing or gifting those assets.
Since sentimental assets like art or collectibles may be more illiquid relative to other investments, you may decide to sell your valuable personal property to plan for an estate tax liability. For high-net-worth families, federal estate taxes can be significant as the top federal estate tax rate is 40%.
Without sufficient liquidity to pay for an estate tax liability, your beneficiaries may need to liquidate assets to pay the taxes due, potentially resulting in a loss of expected wealth. Illiquid and unique assets may take time to sell, so proactively selling such assets may help secure a more favorable purchase agreement while easing the administrative complexities for your beneficiaries and providing funds to pay for an expected, significant tax liability.
Engage a wealth management team to ensure your estate plan is comprehensive
Assets that hold sentimental value to you and your family are especially important to proactively integrate into your estate plan in a way that aligns with your unique personal and family goals.
At Commerce Trust, specialists across multiple disciplines like estate planning, special assets, and tax management* coordinate to ensure your estate plan is tailored to your objectives. For assets like art, collectibles, or other valuable personal property, your private wealth management team can help you obtain a qualified appraisal, navigate family dynamics, and implement strategies that can help you transfer these assets in a tax-efficient manner.
Contact Commerce Trust today to learn more about our comprehensive estate planning services and secure your legacy for future generations.
*Commerce does not provide tax advice to customers unless engaged to do so.
The opinions and other information in the commentary are provided as of November 4, 2024. This summary is intended to provide general information only, and may be of value to the reader and audience
This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such.
Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
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