Inheritance Tax on estimated value of photo negatives left behind? WUTT?
September 10, 2014 7:46 AM   Subscribe

An acquaintance's brother-in-law, a retired photojournalist (Newsweek, Time), has left specific instructions to destroy his negatives after his death so his family won't be hit by US inheritance taxes on the estimated market value of the collection. He sells through Getty and Polaris so this is a valid financial threat (he believes). Kinda sad, I think. He did a close up and personal pictorial project with a young Bob Dylan living in New York, and these rare shots would be destroyed, along with...

...thousands of others.

First, I'm assuming that his concern is a valid one? If so, surely there must be a reasonable way around this, perhaps through gifting while he is alive, or something. Ideas? Expertise?
posted by spock to Law & Government (24 answers total) 2 users marked this as a favorite
seems like the best way to handle this would be to have them given to a museum or educational institution as a gift, then why would the family be paying inheritance taxes on them? and if the organization receiving them is a nonprofit it should be handled. i am not an accountant though.
posted by zdravo at 7:50 AM on September 10, 2014 [3 favorites]

Why can't they sell a portion of the negatives to pay the taxes on the remaining negatives?
posted by Acheman at 7:54 AM on September 10, 2014 [1 favorite]

That's pretty silly. You only pay estate taxes on the estate above 5 mil and change and the marginal tax rate above that tops out at 40%.

There are sophisticated ways to reduce the potential liability, but even if they chose not to go that route his family is still better off having his entire estate.
posted by JPD at 8:03 AM on September 10, 2014 [7 favorites]

I realize this isn't your business, but it would probably be worth finding out if he talked to any sort of estate-planning lawyer before he made this decision. If not, your acquaintance might offer to chip in for a one-time consult if money is an issue for the relative.
posted by ArbitraryAndCapricious at 8:05 AM on September 10, 2014 [4 favorites]

Also your relative can donate 13k per person a year in gifts free of the estate tax, and there is quite a bit of leeway in how art given as a gift can be valued. Especially for things that don't have a big liquid market.

ETA: Gifting to non-profits is actually not a great option as you can only donate at cost if you are the artist. Not market.
posted by JPD at 8:09 AM on September 10, 2014

I'm assuming that his concern is a valid one?

Not really no. There are other reasons he might wish to do this, but even in a situation where he has property worth millions of dollars, any property that is divisible can have some of the property sold off to pay the inheritance tax. So this is a problem with people who inherit "half a house" because, for example, you might have to sell the house if one person wanted money and one person wanted the house. Or in a case where someone inherits a valuable house but not cash to pay the taxes on the value of the house. Neither of those situations apply here. Lawyers know this stuff backwards and forwards. I'm just someone who has been mired in estate executorship for the past several years and know the general outlines of the laws as they applied to me. That said, lawyers actually know the law and one should be consulted.

My best read, as a random internet person, is that there are other reasons perhaps that he wants to have these negatives destroyed and this is a gloss to tell family members instead of explaining those reasons.
posted by jessamyn at 8:18 AM on September 10, 2014 [7 favorites]

I assume you're asking as an academic exercise, as what your acquaintance's brother-in-law does with his stuff none of your business.

So on that basis: he needs an estate planner with an arts practice because his understanding of how this works is so deeply flawed as to be ridiculous. The collection has value but it's not taxable until commercial income is realised. Tax is then paid on that income as usual.

Your acquaintance's brother-in-law is perhaps confused by the issue faced by collectors. That is a totally different issue, but one that is not resolved by burning negatives or paintings to avoid tax. You don't avoid the tax; you just have no paintings or negatives.

At the very least, his state's Volunteer Lawyers for the Arts organisation can explain this to him.
posted by DarlingBri at 8:22 AM on September 10, 2014 [1 favorite]

I agree with the suggestion that the photojournalist consult with a good estate planning attorney. A consultation about how to value the negatives and how to handle them after he dies shouldn't cost too much. DarlingBri's suggestion of a lawyer who has experience with art collections is spot-on.
posted by bedhead at 8:25 AM on September 10, 2014

My not so best perhaps read is that he has been listening to or reading whacky death tax nonsense. From a US tax perspective his concern is not a valid one.

Is there any chance he's becoming fuzzy or even heading for dementia? What looks to us like weird paranoia is a thing.

The elderly person is confused (possibly by memory lapses) or frightened (because they live in a world made unreliable by their memory issues) and instead of living fear and uncertainty they supply"explanations" for the world that just don't make sense. People around them question their explanations, ugly downward cycle of confusion and conflict begins.
posted by Lesser Shrew at 8:26 AM on September 10, 2014 [2 favorites]

This person needs to see an estate-planning lawyer. Estate tax doesn't work that way. If there is some other reason why they want to destroy those negatives, then it is unclear what that reason could be - if some negatives contained, say, a life-ruining secret, then why not just destroy those right now?
posted by Sticherbeast at 8:32 AM on September 10, 2014

Worth noting also: he can leave instructions for whatever he likes -- burn the negatives, shoot them into space, project them onto the Whitehouse -- but his executors are not generally bound by those instructions.
posted by DarlingBri at 8:38 AM on September 10, 2014 [1 favorite]

I assume you're asking as an academic exercise, as what your acquaintance's brother-in-law does with his stuff none of your business.

This would be a correct assumption. What he or his family do is entirely their business. But I wanted to know (for myself) if the concern is a valid one and if his reported response to that concern was a reasonable or unreasonable one.
posted by spock at 8:58 AM on September 10, 2014

It's almost certainly not a valid or reasonable concern.
posted by Justinian at 9:42 AM on September 10, 2014

(Actually "almost certainly" is generous. It's definitely not a valid concern if for no other reason than estate taxes are paid by the estate not by the inheritors.)
posted by Justinian at 9:43 AM on September 10, 2014

I guess his concern could be that the collection will be appraised at a high level but not actually liquid enough to get that price if it needed to be sold. I think that might be reasonable, but think that the best solution is some kind of charitable trust.
posted by michaelh at 10:26 AM on September 10, 2014

tl;dr The testator is not looking at this the right way and needs legal counsel. If he dies with the negatives in his estate, then they pass to his heirs. The estate and the heirs will have to deal with whatever tax consequences there may be.

Destroying them post mortem will not help the situation. The estate can't hold up its empty arms and laugh, "Ha-ha, I destroyed them, so I never received them! No tax! Ha-ha!" Assuming they are valuable, then the estate and the heirs will be destroying a valuable asset, which looks pretty foolish from here.

All this is to say that the testator should get the negatives out of his estate well before death, if there is some tax reason to do so. Again, he needs legal support to do this the right way.
posted by JimN2TAW at 10:57 AM on September 10, 2014 [1 favorite]

I really don't think this is rocket science which requires lawyers, guys. Destroying assets to avoid estate tax is foolish. Hell, I think the odds of these photographs being worth millions of dollars are miniscule in the first place. He'd have to have taken some of the highest priced photos in history. Is his name Andreas Gursky? If not this isn't a problem.
posted by Justinian at 11:42 AM on September 10, 2014

Estate planning (wills, trusts, ante- and post-mortem financial moves for a substantial estate) always requires lawyers.

Unless the testator will accept unsolicited advice that his brother-in-law's acquaintance solicited from a gaggle of internet strangers.

He needs someone he trusts to explain things to him.
posted by JimN2TAW at 12:11 PM on September 10, 2014

Probate can be complex. If his negs are valuable, it's well worth having an attorney write a will and provide estate advice. It would be unfortunate to destroy valuable negatives for tax reasons, especially when the reasons are probably inaccurate.
posted by theora55 at 12:28 PM on September 10, 2014

Chiming in a second time to say that destroying the negatives after his death, whatever their value, is absolutely ridiculous. The assets of the estate get valued as of date of death (for most asset types). So if you have $6 million in cash lying around and then you set it on fire, the estate now has a tax bill and a bunch of ashes. He needs to get the advice of a professional who is well-versed in estate planning. If he is in New York, I can recommend one via MeMail.
posted by bedhead at 1:21 PM on September 10, 2014

I know the people who run Oregon's Volunteer Lawyers for the Arts. If the relative is in Oregon, send me a MeMail and I can put them in touch with the right people.
posted by tacodave at 4:05 PM on September 10, 2014

I know the people who run Oregon's Volunteer Lawyers for the Arts. If the relative is in Oregon, send me a MeMail and I can put them in touch with the right people.

Ditto New York, ditto New Jersey.
posted by DarlingBri at 5:17 PM on September 10, 2014

What bedhead said. If he dies, then the assets are destroyed and not reported, it's tax fraud.

Choices! Leave em to charity or, better, destroy them immediately prior to death.

(This all assumes a taxable estate, IANYL, yada yada)
posted by jpe at 6:27 PM on September 10, 2014

Or you have an estate sale / auction. That either raises cash for the tax or, if they don't sell, gives a good indication that their value is de minimis.
posted by jpe at 6:29 PM on September 10, 2014

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