Families who bought art in the 1950s and '60s are running into an unanticipated problem: collections that have appreciated so much that they now make up a large chunk of their estates.

Jonathan Graber, an estate-planning lawyer in Chicago, has a client who collected works by Jasper Johns, Ad Reinhardt and other modern painters whose value has gone up significantly over the years.

The client's estate is worth about $100 million, with about $40 million in art. If she died, it would owe about $35 million in estate taxes, he says.

Mr. Graber says he has worked with a few clients whose liquid investments have fallen in value, while the value of the artwork they purchased decades ago continued to increase.

"Whether it's someone who owns a family business or a collection of art, they don't want their children to be forced to sell them after they're gone," he says.

Sometimes the kids want the pieces, but other times they don't—and parents often make assumptions that are wrong, estate planners say.

"My typical client has several dozen pieces, with a few worth $500,000 and most worth under $100,000," he says. In two families he is working with right now, "the kids just aren't interested. Other than a couple of pieces, they don't want it." In some cases, the children haven't even responded when the parents ask them which pieces they should save for them.

Why look such a gift horse in the mouth? "I think the child is a little nervous that if they pick the pieces worth $3 million, are they going to get artwork and very little cash, and are they going to have to turn around and sell the artwork to cover the estate tax," says Mr. Graber, a partner at Katten Muchin Rosenman.


Leave your kids a token. The first step is to ask, "Is the next generation even going to want this artwork?" says Mary Schmidt, an estate-planning attorney in Boston.

If so, are they going to want it all? She had a client who acquired dozens of signed prints by Renoir and Miró, among others, over several decades. The collection was so large that she rotated it seasonally in her home, storing the rest and spending a small fortune to insure it, Ms. Schmidt says.

After two years of deliberation, the family matriarch and collector, then in her 90s, decided that leaving all of her art to her kids would be too much—they had no space for it all, and she had other assets to leave them, Ms. Schmidt says. So she let each of her three children pick one work after her death and donated the rest to charity.

What if one child chooses a print worth $1,000, and another chooses one worth $100,000? The executor had everything appraised, and the disparities were offset by cash from the rest of the estate.

You can specify who will receive designated items of "tangible property," including works of art, in your will, says Linda Hirschson, a shareholder at law firm Greenberg Traurig in New York. But be careful: In some states, including New York, those instructions must be in the will itself and not in a separate memo to be legally enforceable.

Keep the collection intact. There are situations in which it makes sense to sell or donate an entire art collection—such as when its value would be diminished by breaking it up.

Ms. Hirschson worked with an estate in which a couple, both of whom lived to be around 100 years old, had amassed a collection of Audubon prints that was sold intact. That was what they wanted, as it was one of the largest collections in the world, she says.

Put the art in a trust. If you want to get the art to your kids but also get it out of your estate, consider using a trust.

Mr. Graber has adapted a strategy used more commonly with real estate: putting the property in an irrevocable "grantor" trust, and naming the children as its beneficiaries. The artwork is pooled together in a limited liability company that is then sold to the trust. Then the parents lease it back for their own use.

Say the artwork is appraised for $1 million, and then it appreciates in value inside the trust. The appreciated value then would belong to the heirs—and the work would be out of the estate.

The strategy hasn't been legally tested, Mr. Graber cautions, and he has applied it only a few times to artwork. It has passed muster with the Internal Revenue Service when used with real estate, he says, as long as "the sales price was reasonable and the rental rate was at fair-market value." (In some places, sales tax may be owed on the sale of the art to the trust.)

Don't trigger a fight. To reduce family tensions, come up with a plan in advance that leaves something meaningful to everyone—and tell your family about it.

Ms. Schmidt worked with a family in which a father left a Stradivarius violin to his two daughters, both of whom performed, with the provision that each could use it half the time.

They lived in different states and they didn't want to sell the heirloom, says Ms. Schmidt, who represented one of the daughters. They even shopped the violin around to see if they could trade it for two comparably priced less-valuable violins, to no avail, she says.

Finally, one daughter got the violin and the other got other parts of the estate, including art and cash, she says. But the battle over the instrument damaged their relationship.

—Email: familyvalue@wsj.com