Art Objects in Estates

When an estate contains numerous works of art, many questions arise, for example:

• Should the works be sold or kept - or are there other alternatives? 
• What is the value of the art objects?
• Where can the works be sold for the highest possible proceeds?
• What needs to be considered regarding inheritance tax in Germany?

Tax considerations, particularly in the case of highly valuable art, can quickly become relevant. In general, art objects are subject to inheritance tax, just like cash or real estate. When the inheritance occurs, the heirs are required to provide the tax office with a detailed account of the estate's contents. The inheritance tax is then calculated based on the total value of this list, after deducting the tax-free amount. The specific tax-free amount depends on the type of inheritance and the tax class of the heirs. Artworks typically fall into the category of "other movable property," for which a tax-free amount of €12,000 is provided for taxpayers in tax class 1, such as spouses or children. The actual tax on art objects depends on their current market value. This value can be determined by the tax office or estimated by the heirs and provided to the tax office, with both parties having the right to verify the information.

Reducing the Tax Burden

Under certain circumstances, heirs may have to bear a tax burden that can only be settled by selling the relevant objects. However, in some exceptional cases, the tax burden can be reduced or even eliminated. If an art object has significant importance for art, history, or science, and its preservation is in the public interest, 60% of its value can remain tax-free. Certain conditions must be met, such as making the art object publicly accessible for research or educational purposes. A complete tax exemption can even be granted if an artwork is also designated as a monument, has been in the family's possession for at least 20 years, or is registered as a nationally valuable cultural asset. It is important to adhere to the so-called holding period in all cases. Accordingly, a tax exemption would be retroactively invalidated if the heir sells an art object within 10 years of the inheritance.

Alternatives to Accepting the Inheritance

There are alternatives to accepting the inheritance or paying inheritance and property taxes. For example, heirs can transfer the art objects to a charitable foundation without incurring gift tax or inheritance tax. If the tax burden exceeds the financial means of the heir, the art objects themselves can be transferred to the tax authorities as an alternative. In such a case, a contract would be established between the heir and the government to regulate the details. However, there must be a public interest in the artworks, and the estate holder does not have an automatic entitlement to this procedure.

It is always advisable to contact the tax office in a timely manner, and consulting a tax advisor may also be beneficial. Testators can also take steps during their lifetime to ensure proper bequeathing. For example, obtaining thorough appraisals of valuable artworks or creating documentation of their provenance can maximize proceeds from sales. Testators can also arrange for the artwork to be transferred to a foundation. Additionally, there are initiatives in some federal states that provide advice to artists, art collectors, heirs, and estate holders. These initiatives scientifically document the estates and publish catalogues raisonnés based on this information. Some selected artworks are even purchased and made publicly accessible.

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