Deferred giving of art: the joy of keeping your treasure just a little bit longer.

• Author: McKinney, Hal, Jr.

Most practitioners agree that standard deferred charitable giving vehicles involving trusts do not work when the subject of the gift is tangible personal property. The problem is that there can be no assurance in a standard charitable trust arrangement that the museum will ever actually receive the precise piece of art being placed in the trust. All is not lost, however; there may be a way to achieve similar tax results by making a present gift of a percentage interest in one's prized possession.

A percentage interest in a great work, even as small as 10%, can be valuable to a museum for several reasons. First, a percentage interest can give the institution the right to show a work for part of the time, to include it in special exhibitions, or to make it available in some other way for the community as a whole to enjoy and treasure. Alternatively, if the work is ever sold, the museum can share in the proceeds to fund acquisitions of other works. Finally, and probably most importantly, the museum can hope, by acquiring an entry-level percentage interest in the work, to form a relationship with the community of its other present and future co-owners, which might lead to its full and permanent addition to the collection.

Museum policies vary drastically about accepting percentage interests in artworks. Some welcome them avidly; others look at the number of person-hours required to accept and care for an object, and deploy their people resources in other directions. Most museums that accept percentage-interest gifts consider only the most important works consistent with their collection policies.

Here are a few tax considerations associated with gifts of artwork in general, and percentage interests in pieces of art in particular. * The basics: When a collector gives a work of art to a museum, the donor is generally entitled to deduct the fair market value of that gift in computing his taxable income. Deductions for contributions of personal property are limited to 30% of the adjusted gross income on the tax return, with the excess being carried forward and used in the five succeeding years. For the donor to get the market value deduction, the museum needs to agree to report any disposition of the work occurring within two years of the gift. In general, tax-advantaged gifting strategies are available only to collectors -- an artist faces the issue of art as inventory, with the deduction limited to cost.

How to do it: The actual gifting of a...