In the first installment of our multi-part series we explored the difference between revocable and irrevocable trusts. We began by introducing the basic concept in the context of protecting art collections. In this installment, we will hit the road, fuel up and put the pedal to metal as we discuss how an irrevocable trust can protect your little piece of Americana – your classic car collection!
As a matter of fact, now may be the perfect time to start forming a plan to make sure that cherry 1965 Shelby Daytona Cobra you painstakingly restored is given the tender loving care it needs to ensure it is available to tear up the asphalt for many, many years.
Lucky for you, starting in January 2018, the lifetime gift tax exemption and the generation-skipping transfer tax exemption double up to $11.2 million per donor. This is a rare and wonderful opportunity for those with high-value collections to reduce the size of their taxable estates by making gifts.
You may be thinking, “My artwork or other collection does not come anywhere near $11.2 million”, but don’t forget that even a painting, sculpture or other collection or family heirloom worth only a few thousand dollars could still be seized and auctioned off by creditor if you get sued. Protecting these asset from potential creditors is another important consideration.
There are a number of tools available to collectors to protect the collections they love so dearly. While we will explore them individually in future installments, they bear a brief mention here. As a foundational matter, you can simply make a lifetime gift or include the collection as a part of bequest in a Will. However, if the value of the gift is more than the exclusion amount it will be applied to the lifetime gift amount. In the 2018 calendar year, the annual gift exclusion is $15,000 or $30,000 for a married couple; well below the value of many collector’s pride and joy. In addition, if you pass it in a Will, it does nothing to protect the collection from those potential creditors.
You can sell the vehicle or other item outright, but bear in mind the IRS will tax the net capital gains at a maximum rate of 20%.
Another strategy is to set up a charitable lead trust or a charitable remainder trust (“CRT”); the former option works for current gifts, while the latter is designed for deferred gifts. When correctly structured with the assistance of an experienced estate planning professional, CRTs can include a provision allowing the creator (or, grantor) to make basic changes, such as the CRT’s designated charity.
A CRT lets you convert your treasured automobiles into lifetime income and protect the asset from potential creditors, while at the same time reduces your current income taxes now and potential future estate tax exposure after you die. Furthermore, you pay no capital gains tax when an automobile is sold. Perhaps most importantly, a CRT allows you help one or more charities that have special meaning to you and your family.
Whether you are considering making a lifetime gift, setting up a trust, or even creating a charitable foundation of your own, the knowledgeable attorneys at Bluestein Law Firm can help you assess what you have, organize your intentions and execute a plan that will keep your American steel rust free and on the road for a long time. Call now to set up your free consultation 720-420-1777.