Your art collection can pose challenges and opportunities in estate planning.
When Wal-Mart heir Alice Walton wanted to contribute to the art community she founded one of the nation’s premiere art museums. Most art collectors haven’t the wherewithal to create a Crystal Bridges Museum, but anyone who has invested in fine art will eventually face the decision of what will become of their collection when they are gone.
The Commerce Trust Company’s Eric Ireland has seen the importance of this decision for his clients on a personal and financial level. Ireland, Senior Vice President and interim director of Private Client Administration management for Commerce Trust’s Kansas City region, has spent two decades helping clients understand their options in estate planning.
While every situation presents different opportunities and challenges, Ireland said there are several important considerations that should be made when planning an estate that includes valuable artwork. Those considerations don’t necessarily revolve around the monetary value of a person’s art collection, he said. The value of art, unlike that of stocks and bonds, does not fit neatly into a financial spreadsheet.
“Many people, unless they are dedicated collectors, don’t think of (the various options) in passing along their collections,” he said. They often treat their art in the same way as their other possessions, to be passed down to their heirs. But those heirs may not share the passion that drove a person to collect the art, or the understanding of the artwork’s intrinsic value.
“If you’ve spent a lot of your life on your collection, more goes into that” than just monetary considerations, he said. “It is an emotional moment that moves you to purchase a work of art and acquire it for your personal collection.”
[block pos=”right”] “If you’ve spent a lot of your life on your collection, more goes into that” than just monetary considerations… “It is an emotional moment that moves you to purchase a work of art and acquire it for your personal collection.”
—Eric Ireland, Commerce Trust Company [/block]
Liquidation or Legacy?
Art collectors have several options when planning their estate.
They can leave the art to their children, but they should clearly consider what that will mean for their heirs and for the collection they worked hard to assemble. Their children may decide to auction their collection, redistributing the pieces of art and undoing their life’s work in bringing the collection together. This is not a simple process for the heirs either, as they must find qualified appraisers, arrange the sales, consider tax implications, and hope their timing coincides with favorable demand for those particular works of art.
Collectors can donate their art to a charity. Ireland noted that this choice is often made with tax considerations in mind because the donation may be sold by the charity for its financial value. As with any donation, the estate owner should consult a qualified tax advisor to understand the implications of this decision, and the best way to implement the donation.
Collectors can donate their art to a museum. If the estate owner has a specific museum in mind, he or she should check with the institution’s curator before pursuing this path.
“Museums have a focus on what they need” for their collection and mission, Ireland said. “You should ask, ‘Does this fit into the scope of your collection, and if not, can you direct me to an (appropriate) institution?’ ” Museum curators usually will want to help preserve collections, he noted. If the collection does not work for their institution, they will most likely know of another museum that would be happy to accept it.
They can establish their own museum — if, of course, they have the resources to do so. While another Crystal Bridges is unlikely to appear any time soon, smaller private museums are not limited to those with vast reserves of wealth. Someone with a substantial art collection, especially one centered around a theme or artist, may want to explore the advantages of sharing that collection with the public through their own establishment.
Where to start
“There are tax differences for different strategies,” Ireland noted. Each of the above options has specific tax considerations that a collector should go over with their legal and tax advisors. Having the collection appraised by an expert qualified in that specific type of art is a crucial first step. Involving a trusted and qualified tax advisor is a necessary second step.
Which path is chosen, of course, depends not only on the financial goals, but also the personal goals of the owner. Do they want to hand down their collection hoping that their own passion for art will also pass to their children? One can’t always be certain of their offspring’s intentions for their beloved and valuable art collection, but there are ways to ensure said the collection will not be disassembled and liquidated when the heirs take control.
“You can (and should) set boundaries,” Ireland said. “Work with your advisors to create a statement of intent for your collection.” Such a statement can be structured to ensure a collection is managed as the estate owner wanted, and envisioned.
A statement of intent is also necessary when donating a collection to an organization such as a museum. The museum’s curator will want to know the donor’s wishes for their collection, and the collector will certainly want to have a say in what is done with their artwork. Again, it is best to rely on the guidance of trusted experts here.
“An estate planner is integral in putting the estate owner and (receiving) organization together,” Ireland said. “And the owner’s attorney is an integral part of the discussion with the organization receiving it.” Working together, the estate owner and organization receiving the collection can agree on exactly how the artwork is managed and displayed.
Art, especially fine art, is unlike any other type of possession in its mix of emotional investment, financial investment, and subjectivity both in aesthetic and monetary value. Because of that, art collections offer unique challenges – or opportunities – when planning an estate. Owners of unique and substantial collections who want to ensure their work becomes a part of their legacy have excellent options – if they plan accordingly.