Posted By:
Frank WakefieldI've attempted to explain this in past times...
Say I buy a signed print of Marc Chagall (one of his paintings is shown in Notting Hill)... I take it home and insure it. It would need to be separately scheduled, it isn't going to fit on a general policy. Now one day I die. In some states it would be obvious to the folks who'd consider the estate value that there should be a signed Chagall print in the estate. It kept showing up on insurance schedules year after year... and the schedules even show an appraisal value. If the print isn't around, then I must have sold it, and the tax folks should be able to look back through my 1040s and see where I sold it and had ordinary income from its sale. If they can't find where I've declared that income, then I must have omitted paying taxes on the sale, and my estate would owe back income tax. It would be a giveaway to see where it was scheduled for 16 years, then no more...
Maybe I'd be better off to not insure it, take good care of it, not declare a value on it, and then I could just give it to a grandkid one day.
Insuring it is a guaranteed way of making sure that either an estate tax or an income tax will be paid on it one day.