The taxman is the mortal foe of any family that is facing a stiff estate tax as generational wealth moves it’s way down through the family tree. But for some, a novel new way has been found that can lessen the tax impact; portfolios heavy in art and other collectibles that have fungible valuations. Due to the booming market for high end collectibles it is easy to place a valuation on items that, while comparable to the market at the time, will be undervalued down the line as prices rapidly rise. Combined with the fact that appraisals are highly subjective, it allows an estate to undervalue assets, or overvalue when donating to charity, without violating tax laws. However, tax authorities are now paying closer attention to this work around with the IRS creating a team that is dedicated to contesting low valuations. But even with the increased scrutiny, it is unlikely that the practice will decline in popularity due to the relative ease with which taxes can be avoided in many circumstances.
See Robert Frank, Revaluing Family Treasures for the Taxman, The New York Times, February 6, 2016.
Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.
