Top 10 Estate Planning Tips for your Art Collection
Mr. Slugg is an author and frequent speaker on topics related to charitable planning, gifting art and other collectibles. He has authored the Handbook of Practical Planning for Art Collectors and Their Advisors, published by the American Bar Association, Section Real Property, and Trust & Estate Law.
When speaking on the topic of planning for the ultimate disposition of art collections, I would offer the following top ten planning tips:
- Plan. Do not leave the ultimate disposition of your collection to chance. It is surprising how many collectors do not engage in this process and leave the ultimate disposition decisions to their family and advisors, most or all of whom do not have the intimate knowledge of their collection.
- Use competent and experienced advisors. Use a complete and competent advisory team. The team should include art experts such as dealers, gallery owners, curators and restoration experts; risk management professionals; qualified appraisers; private bankers; and attorneys and accountants, all with experience in planning with art. Not only do they need to be on your advisory team, but they need to communicate with one another.
- Do appropriate risk management. Engage an insurance expert who is specifically experienced with art. You may or may not purchase insurance, but do consider the security of your collection, from theft, fire, water, storm or other casualties.
- Prepare and maintain an inventory. This is true for all assets in the form of financial statements, but it is particularly true with respect to art and other collectibles. An inventory is critical to every stage of the planning process, and should be kept as current as possible.
- Know the value of your collection. Insurance providers and lenders, if any, will require appraisals and periodic updates. Appraisals will be required for income, estate and gift tax purposes. Even if not required, you should have your collection periodically valued, perhaps every three to five years, depending on how actively you are collecting and on what you are collecting.
- Maintain records. As part of your inventory, maintain records of ownership and, as the value and significance of the collection grows, further evidence of provenance. This includes all contracts to purchase or sell, actual bills of sale, loan agreements with museums and so on. Consider title insurance if you have doubts about the provenance of any piece you are considering for purchase.
- Ask the big question. Involve your family. Do they share your passion for your art? If so, planning should focus on how to transition the art to them, whether that is now or later. If not, and there are other financial assets or you feel they are otherwise provided for, then explore your charitable options.
- Consider liquidity. Art by its very nature is an illiquid asset. It does not provide cash flow or income during life, and although it may be sold, that comes with a high tax cost, and perhaps not quickly enough to address estate liquidity needs. Art lending may be an appropriate solution to address this lack of liquidity.
- Consider charity. Given the expense of selling, and the opportunity cost of wealth transfer, the “charitable solution” is often the most tax efficient way to keep your collection intact. And if the “charitable solution” is right for you, consider lifetime donations as this will entitle you to a federal income tax charitable deduction in addition to estate tax savings. Most importantly, do not surprise the museum (or other charity) if you are leaving art to them. Not all museums will want your art. It may not fit their collection or their storage vault. Talk to them now about your wishes, even if they are not carried out until later.
- No surprises. Give your family, and your personal representative, clear direction on what your estate will include, and clear direction on what you want to happen. And while you are going through the planning process, make sure your advisors know the extent and value of your collection.
Trying as the process may seem, do your best to enjoy planning for the disposition of your collection. It is certainly not as much fun as building the collection, but it is ultimately just as important.
Collectrium integrates managing and enjoying your collection in a single, secure experience, that already simplifies estate planning for thousands of collection owners around the world. The recent addition of a built-in database of over 6.5 million auction results and instant connections to vetted partners, such as art appraisers, insurers, and transportation companies, make Collectrium the single, central hub for everything related to your collection.
Contact a Collectrium collection care specialist today to find out how to plan for your art collection using our innovative technology and bank-level privacy and security.