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Retirement |
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Retirement can cause stress for those who work independently in the art world and experience unsteady income. Retirement Issues
How can I afford to retire?When the artist's earnings reach a certain level, the artist is eligible for benefits under the AFTRA Health and Retirement Fund. AFTRA is a union that represents singers and several other categories of entertainers, including actors and musicians. The American Federation of Television and Radio Artists ("AFTRA") Health and Retirement Funds provides healthcare and pension benefits for artists that achieve a certain level of earnings, but qualifications for AFTRA benefits is based on artist royalties. Proper royalty accounting us important for qualification status for healthcare and pension benefits.[1] Once again, artists need to be extra careful in keeping track of their finances; many times the burden is placed on the manager to do so. Members of AFTRA are eligible for health benefits if their earnings equal at least $7,500 within a twelve-month period for an individual, or at least $15,000 to cover a family.[2] Artist earnings are based on a percentage of the gross income they have earned. This gross amount is not limited to recording income, but also includes television income, and any other income covered by the AFTRA contract. [3] The workings of such retirement plans are complicated and require keeping very close records of their royalties and gross income from their works. When an artist starts to make money, they should hire a lawyer immediately to advise them on their financial decisions. [4] Back to TopAs a young artist should I set-up retirement funds?A 401(k) plan is a retirement savings plan that is funded by employee contributions and (often) matching contributions from the employer. These plans are popular since contributions are taken from pre-tax salary, and the funds grow tax-free until withdrawn. [1] There are many advantages to 401(k) plans. First, 401 K plans reduce the amount of tax paid out of each pay check. Second, all employer contributions and any growth in the capital grow tax-free until withdrawal. Third, the employee has much control over the investments. Fourth, all contributions can be moved from one company's plan to the next company's plan should a participant change jobs. Fifth, because the program is a personal investment program for your retirement, it is protected by pension (ERISA) laws. [2] There are also a few disadvantages associated with 401(k) plans. First, it is difficult to access your 401(k) savings before age 59 1/2. Second, employer contributions usually do not become the property of the employee until many years have passed. Currently, those contributions usually can be recovered by the employer all at once after five years of employment, or can vest gradually from the third through the seventh year of employment. [3] Once again, an entertainment lawyer will have the background in tax law and artist finances to advise you as artist whether or not a retirement plan such as a 401 (k) plan is right for you. Basically, it will depend on your gross income as an artist. Back to TopWhat is a traditional IRA?A traditional individual retirement account (IRA) is an excellent way to gain tax advantages while saving for retirement. Depending on your filing status and depending on your adjusted gross income (AGI), the money you contribute to an IRA, along with the interest on those savings, may accumulate tax-free until you start withdrawing money from the account. For tax year 2004, you can contribute up to $3000 per year tax-free. For 2005 through 2007, this amount increases to $4000 per year. For 2008 and beyond, the amount is $5000. Also beginning in 2009, contributions are indexed for cost of living adjustments, in increments of $500. You will typically begin withdrawing funds from your IRA between the ages of 59½ and 70½. You have to pay income taxes on these withdrawals. If you begin withdrawing early, you normally have to pay taxes plus a 10% penalty. Similarly, if you fail to make certain withdrawals after age 70½ you could face stiff penalties. If you are at least age 50 during a given year, you can contribute a catch-up contribution beyond the normal limits. For 2004 and 2005, this additional amount is $500 per year. For 2006 and beyond, it is $1000 per year.
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What is asset protection planning? What does it entail?Asset protection planning is a general term that refers to ways you can prevent the loss of your money and property to future creditors. You and your attorney start by determining occupational and other risks, potential losses, and your level of risk aversion. Then you develop strategies to address the problem areas. For example, asset protection planning often involves buying insurance to mitigate losses and transfer risks away from you. Of course, insurance is not a magic bullet: coverage limits may be inadequate, the insurance company may become insolvent, a coverage dispute may prevent you from collecting after a loss, and so forth. Other asset protection planning techniques can make it more difficult for your creditors to collect. You might decide to set up a trust, corporation, family limited partnership, off-shore entity, etc., to hold legal title to your assets. An attorney can advise you as to which techniques are legitimate and which cross the line of illegality. Used properly, asset protection planning strategies can induce creditors to quit pursuing their claims or settle on favorable terms to you, because otherwise the costs of collecting for them are not worth it. Back to TopWhat is a Family Limited Partnership? How will this protect my work and other assets into retirement and upon death?A family limited partnership (FLP) is a way to reduce taxes and reduce the risk of losing money or property to creditors. Usually the parents are general partners with a 1% interest in the FLP, and the children/siblings are limited partners with a 99% interest. The participants assign or transfer ownership, management, and control of jointly-owned family assets to the FLP. If a creditor gets a charging order, the family can keep the money safe by limiting the FLP’s distributions, within certain restrictions. An FLP can help reduce estate and gift taxes through the use of “valuation discounts” which can lower certain asset values, thereby decreasing the total amount of taxes owed.
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How will estate taxes impact the future of my work, so that it remains in the family?
Most people don’t have to pay estate
taxes, but it depends on the year in which you die and how much your estate
is worth. The estate tax is gradually being repealed between now and 2010,
when it will disappear entirely. Then, unless Congress extends the repeal,
the estate tax will come back in 2011. The table below describes this
progression:
Year of Death Exempt Amount
Back to TopDo I need an insurance policy on my work?Visual artists likely need insurance on their work while it is in the studio, on the way to/from a gallery, or on public display. Know who is responsible for insuring your art or reimbursing you in case of loss, damage, or theft. If a seller has this responsibility, you should verify how much insurance the seller has, to make sure it is enough to cover the value of your art. If you carry insurance yourself, you will likely need verification of loss or theft through a police report, and a detailed description of the stolen item, ideally including photos and other documentation. In the case of a damaged piece of art, the policyholder describes the item, what happened, and the item’s current condition. In some cases, a conservator may be able to restore the piece. If not, the parties may agree to an appraisal and settlement for depreciation. For an artist working out of his or her home, a homeowners policy will likely not cover business activities (even if it’s only part-time). However, you may be able to buy a “studio coverage rider” at an additional cost. You can also buy business personal property insurance, which would cover things like stolen inventory and tools. Significantly, homeowners policies (including studio coverage riders) do not cover things that happen at art shows or theft from your vehicle. When purchasing a policy, be sure to ask all necessary questions as to what is covered and excluded.
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What will happen to my work after I retire?This is both a simple and a complex question. Simply, retirement has no effect on your copyrights. The complexity only enters if you contract otherwise. How can I ensure my studio/gallery business remains healthy into my retirement or upon death?You should always sign every piece of art, and preferably date it and add a title (on the front, back, frame, etc.). Posthumously signed art done with “estate stamps” – a facsimile of the artist’s signature – is not as valuable as signed art. Keep all documentation about your career, whether it is business records, the art itself, materials used, etc. Provide descriptions and explanations of your works. This will enable the next generation to understand your art and will add to its value. Make sure to have a marketing plan for your art for when you retire or die to make sure your art is not sold randomly or without exclusivity, thereby damaging your reputation and legacy. A will or trust should specify how your art will be divided. Your executor or personal representative should have contact information and other necessary instructions for dealing with your business associates. An estate planning attorney can help you create a will or trust to deal with these issues.
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Can I still control copyrights to my work after I retire?Yes. Copyrights have nothing to do with your current employment status. Back to TopIf I own a studio/gallery where my work is displayed and sold, can this responsibility be transferred to family upon death or into retirement?Yes. Depending on your individual circumstances, your attorney may advise you to set up a family limited partnership, corporation, limited liability company, or other business organization to ensure a smooth transition when you retire or die. An attorney can also help you set up a trust or will to transfer assets upon your death. Back to Top |
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Contact Information: Please contact K Royal (kroyal@asu.edu), Director of Pro Bono Programs and Student Life at the College of Law at Arizona State University regarding Advocacy for the Arts and/or this website. Ms. Royal will not answer specific questions regarding the arts or individual legal situations, but she can discuss this exciting new program and its merits.
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