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Author Topic:   Fractional gifts
June Martin
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Posts: 1223
Registered: Apr 93

iconnumber posted 08-08-2009 04:42 PM     Click Here to See the Profile for June Martin     Edit/Delete Message   Reply w/Quote
Hi. I was reading today that some members of the US Congress are considering loosening the limitations on fractional donations of art. Apparently this is in response to efforts by tax advisors and their wealthy patrons as well as museums that claim to have experienced a fall off in donations since the donation rules were tightened.

What experience have you had with fractional donations of art and do such donations make otherwise out of reach works of art more accessible to the public or is it just another tax savings manuever?

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Ulysses Dietz
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iconnumber posted 08-11-2009 08:57 AM     Click Here to See the Profile for Ulysses Dietz     Edit/Delete Message   Reply w/Quote
Fractional gifts are indeed a hot topic in the museum world today; but it's not just a tax dodge. Without rich donors, museums would be in the crapper; we need to keep that in mind. Without tax benefits, there is no incentive to donate anything to anybody, as museums in South America know all too well. Without complex tax benefit schemes, England would have lost incalculable amounts of its cultural patrimony through death duties.

Personally, I've had little issue with fractional donations, because it only arises with massively valuable works of art (and no one ever gives us those). The crux of the current issue is that artworks given fractionally over, say, ten years, were frozen in value at the moment of gift. Thus, if an object doubled in value in a decade, the final 1/10 fraction was worth no more than the original one--thus depriving the donor of a substantially larger tax benefit. Rich people didn't get that way by being altruistic, and you can't help but see the problem. Congress is notoriously art-hating, and their hunger to keep rich people from getting more deductions created the problem. Two decades ago Congress did crack down on the requirement for proper appraisals, so that rich people didn't get fraudulently high tax benefits from donations to museums, but museums never objected to that, because it was merely keeping people honest.

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June Martin
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iconnumber posted 08-16-2009 10:06 PM     Click Here to See the Profile for June Martin     Edit/Delete Message   Reply w/Quote
Thanks, Ulysses, for confirming the value of tax incentives to encourage charitable giving. It will be interesting to see how the rules evolve and whether the intended results are realized. It would be a fascinating project to study the incentives in various countries and how effective they are.

[This message has been edited by June Martin (edited 08-16-2009).]

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Dale

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Registered: Nov 2002

iconnumber posted 08-16-2009 11:15 PM     Click Here to See the Profile for Dale     Edit/Delete Message   Reply w/Quote
How is the transfer structured? If title passes when the item is turned over, I can see that letting someone take the deductions over ten years might present problems. Can the donor use a structured transfer where each year he transfers 10% ownership? That way it seems that adjustments in valuation could be done. I have seen real estate donations that worked sort of like that. It would be helpful to realize that prices can go both up and down.

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Ulysses Dietz
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iconnumber posted 08-17-2009 10:17 AM     Click Here to See the Profile for Ulysses Dietz     Edit/Delete Message   Reply w/Quote
I believe that's exactly right--I think now that 10 years is the maximum for fractional giving, and each year 10% of the object is given--so the gift is locked in the first year (i.e. there is no backing out once that first fraction is signed off). However, according to current rules, the ability to change the value of any given percentage of the gift is also locked in. Theoretically, the market value of something could DROP over ten years (viz the contemporary art market right now). But of course Congress wasn't thinking that way.

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bascall

Posts: 1626
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iconnumber posted 08-17-2009 10:31 AM     Click Here to See the Profile for bascall     Edit/Delete Message   Reply w/Quote
Maybe a ceiling and a floor for the adjustments would be amenable to all parties?

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Dale

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iconnumber posted 08-17-2009 06:05 PM     Click Here to See the Profile for Dale     Edit/Delete Message   Reply w/Quote
What happens if the donor dies during this period? Does the deduction pass to the heirs? Would this effect the arrangement.

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Ulysses Dietz
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iconnumber posted 09-01-2009 04:38 PM     Click Here to See the Profile for Ulysses Dietz     Edit/Delete Message   Reply w/Quote
As I understand it, fractional gifts are already gifts, legally, and when the donor dies, the entire gift reverts to the recipient museum. Or, at least, that's the way museums write the agreements.

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bascall

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iconnumber posted 09-01-2009 04:41 PM     Click Here to See the Profile for bascall     Edit/Delete Message   Reply w/Quote
Ergo, don't wait to give!

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