Last month, a famous metal rabbit sculpture sold at a Christie’s art auction for $91 million (!), which set the world record for the most expensive price ever paid for artwork produced by a living artist. In 2013, an orange balloon dog metal sculpture crafted by the same artist sold for what was then a world record price of $58.4 million. His “Play-Doh” sculpture fetched $22.8 million in 2014 and you could have purchased his Hoover vacuum cleaner art piece for a neat $13 million around the same time.
Who is the eccentric artist who is arguably the most commercially successful sculpturist of all time? Why it’s Jeff Koons, who happens to hail from York County, Pennsylvania.
Koons (age 64) was born and raised in York and still splits most of his time between New York and his York farmstead. I heard Koons speak at a Rotary Club meeting in York a couple years ago and he came across as the brilliant, eccentric, wildly successful professional artist that he is.
Koons reminisced about spending time as a child creating art in his father’s downtown York business and about the material influence that his York experiences has had on his body of work.
As you might expect, Koons’ odd sculptures are both admired and criticized in professional art circles. His personal life has been colorful to say the least, some of which is way too risqué to mention in this family-friendly blog.
While the lofty sale prices area real head-scratcher to me, Koons’ artwork has been a solid investment for art collectors in the past. I saw a chart from 2014 (Artnet Analytics) that compared the total investment return from Koons’ artwork from 2004 to 2014 to the S&P500 Index. Based on auction sale prices, Koons’ art returned a 17.4% average annual return over the ten years, compared to just a 4.2% average annual return for the S&P500 index over the same time frame. While impressed, I’m still uninterested in owning the Hoover vacuum art in my retirement plan.
After his latest resale transaction, however, I should have a word with my artist daughter Abby about following in the footsteps of her fellow York artist. Maybe she could transform our toaster oven into modern sculpture art and maybe punch our Powerball ticket.
I enjoy seeing the delight on the faces of our clients when the subject turns to their grandchildren. How did grandparents survive before smart camera phones? Many want to financially help their beloved grand rug rats pay for their future higher education costs without giving them or their parents money outright.
Of course, we have financial planning tactics to accommodate generous grandparent’s grandchildren gifting goals – the ole’ “GGGGG”.
In recent years, the 529 tuition savings plan has become a mainstream higher education planning vehicle.
One of the virtues of a 529 tuition saving plan is that a grandparent can set up an account as owner and make cash contributions for the benefit of a favorite grandchild. Each grandchild must have their own 529 account; multiple beneficiaries are not allowed on the same account.
Importantly, unlike a parent-owned 529 account, a grandparent-owned 529 plan falls outside of the needs-based financial aid formula for the college student. That’s great, but distributions made from a grandparent-owned 529 plan that is used to pay the grandchild’s college costs can be considered a student resource and ding the student’s financial aid eligibility: 50% of the payment could be included as student income in the financial aid formula.
Let’s sprinkle another wrinkle into the mix. Starting with the 2017-2018 school year, a major change to the federal financial aid program took effect in which the parents and student now provide financial/tax information from two-tax years prior, not the most recent tax year. For example, for the 2019-2020 school year, financial need-based aid will be granted based on tax return and family balance sheet data for 2017.
Another key change is the enrollment window to file the Free Application Federal Student Aid (“FAFSA”) form was pushed forward to October 1st for the following school year. As competitive as financial aid grants are these days, applying as early as possible is a good idea. The October 1st date also plays nice with the new financial profile date change.
The major change in financial data reporting date has really upended the need-based financial aid eligibility planning game. The good news is that for families who file early for need-based aid, they will no longer have to estimate their tax return data and then “true up” the information later once their tax return is filed.
The flip side, however, is that it is now forcing parents/students to finesse their financial profile more than two years out from the financial aid application date, which is weird.
Furthermore, it means that distributions taken from a grandparent-owned 529 plan used for college costs during the last two years of a four-year program will now fall outside of the reported financial aid timeline. Therefore, a prime strategy for grandparents is to wait and fund the back end of their grandchild’s college costs with cash distributions from their 529 plan.
Also remember that a 529 tuition savings plan allows grandparents to change the account beneficiary at any time at their discretion. Plus, they can accelerate up to five years of their annual federal gift exclusion – $15,000 per year – into a 529 plan for the grandchild, all of which is removed from their estate. This is a nice technique for Pennsylvania grandparents who will be subjected to Pennsylvania inheritance tax upon their expiration.
Other financial instruments that can be financial-aid friendly for parents and ignored on a grandparent’s balance sheet is the cash value of life insurance, an IRA and a Roth IRA. Distributions / gifts from all three would subject to the same need-based financial aid resource rules as 529 plan distributions for grandparent, however, so be careful out there you generous geriatrics.
Until next time, be well…..Tim