Elkins Estate Wins Tax Case on Fractional Art Ownership

Forbes has a somewhat arcane story on the estate of James A. Elkins, Jr. winning a tax court appeal on some fractional ownership of art. The import of the decision is that it opens up further estate planning options for collectors with significant value locked in their art collections who might otherwise be forced to sell the art before their deaths to take advantage of the lower capital gains taxes on art rather than the steeper estate taxes.

In the Elkins case, the family did start planning for the transfer of the art to the next generation. James A. Elkins Jr., a banker and son of the founder of the law firm Vinson & Elkins, and his wife, Margaret Keith Wise, were both civic leaders in Houston. They put together a contemporary art collection in the 1970s to 1990s including works by Pablo Picasso, Henry Moore, Jackson Pollack, Paul Cezanne, Jasper Johns, Ellsworth Kelly, Cy Twombly, Robert Motherwell, Sam Francis and David Hockney. The list of 64 artworks is in Appendix A of the lower court decision. The stipulated full fair market value of all the works was $24.6 million, ranging from an $6 million Jackson Pollack drip painting to a $50,000 Harry Bertoia sounding sculpture and a $100 carved wooden shield from Papa New Guinea.

The couple used various planning tools: a wealth-shifting trust called a GRIT, a co-tenancy agreement, a lease, and a disclaimer. So by the time Elkins died in 2006 (he was predeceased by his wife), he held a 50% interest in three of the works and a 73% interest in the other 61 works. The couple’s three children held the remaining interests.

Big Art Collector Tax Win In Fifth Circuit (Forbes)