Exactly how do you incorporate your art collection into your estate plan?
Some wealthy art collectors will have amassed a sizeable collection based on a genuine appreciation of a certain artist or period. Other collectors will have been motivated by wealth planning through art as an investment strategy.
But whatever your reasons for collecting art, how you dispose of it after death needs consideration.
Avoiding hefty estate taxes, and preventing potential family conflict and litigation, requires careful forward planning now.
Understand the value of your collection
It is essential to consider both the monetary and intrinsic value of your collection before incorporating it into your estate plan.
The total fiscal value of your collection may well exceed your estimate. Your art may be far more valuable as a collection, rather than the sum of the value of individual pieces. Similarly, the death of an artist in your collection can cause a major upward trajectory in value.
Have your collection independently appraised by an art expert to understand it’s true value in the market. Keep accurate and up-to-date appraisal records of each piece in your collection.
Ensure your documentation is in order
It is vital to build files of ownership to there is no question concerning the art’s provenance.
The general rule is, the greater the distance between the collector and the artist, and the older the artwork, the more likely there will be questions of provenance.
Build files of ownership that include certificates of authenticity, bills of sale, consignment agreements, appraisal reports, insurance records and any other identifying documentation you have. The more thorough the documentation, the less likely questions concerning authenticity and provenance will arise.
Consider the tax burden
It’s important to consider how to transfer your artwork to others in the most tax efficient manner.
It is possible to sell or gift the art to a chosen beneficiary in a living trust, whilst still maintaining physical possession of the collection. Similarly, irrevocable trusts can be set up allowing collectors to transfer legal ownership out of the estate, then leasing it back so they can still enjoy the artwork whilst alive.
Estate taxes vary greatly depending on your location, so check with your legal advisers for an accurate tax estimation for your collection. You may need to consider international estate planning tools as well.
Decide who will receive your artworks
There are many different vehicles for passing on ownership of your art.
You could sell off the complete collection and have the proceeds distributed to your heirs or beneficiaries.
You could transfer your collection to family members or other loved ones – either during your lifetime or after death.
Alternatively, you could make a charitable donation of your collection, or individual pieces in it, to a museum or other institution.
With any and all of these options, you should consider how your art is managed posthumously. There are estate planning tools available to control your collection, from limiting commercial use, display or sale, in oder to preserve your legacy.
With so many options, and substantial estate tax implications on art collections to consider, it’s never too early to start thinking about your estate plan.