The Internal Revenue Service sits poised to present your family with a very significant tax bill if the value of your estate enters taxable territory.
This is something that the children of the noted art dealer and collector Ileana Sonnabend found out firsthand after she died while in possession of some very valuable works of art.
After it was all said and done and everything was tallied up the heirs to the Sonnabend estate paid over $470 million in federal and state level estate taxes.
In this case the estate was comprised of many different works of art. So, some of them could be sold to pay the taxes.
But what if you inherited just a single valuable piece of art and for some reason or other you were not allowed to sell it? If the IRS was to place a significant value on it you would have no way of paying the tax bill.
In the Sonnabend case the existence of such a work of art resulted in a dispute between the family and the Internal Revenue Service.
The estate included “Canyon,” a Robert Rauschenberg sculptural combine. The Internal Revenue Service stated that its value was $65 million. However, the work cannot be sold because there is a stuffed bald eagle in it.
Nevertheless, the IRS wanted to impose the estate tax along with additional penalties.
Finally, a settlement has been reached and in fact the heirs to the estate will be spared these additional expenses. The Internal Revenue Service agreed to back off of its demands if the heirs donate the combine to a museum, and this is precisely what they have done.
The work of art is now the property of the New York Museum of Modern Art.
Author, President and Founding Attorney
Parman & Easterday
Parman & Easterday are members of the American Academy of Estate Planning Attorneys.