Affluent art collectors are passionate about art. While they tend to expect their acquisitions to appreciate in value, they buy for personal and aesthetic reasons. Affluent art collectors are inclined to be extremely focused on acquiring and not very interested in disposing of art.
This often means that at death they have amassed significant collections. What is surprisingly common is that many affluent art collectors do a substandard job of addressing their artwork in their estate plans.
Failing to plan for the disposition of collections upon death can prove quite costly to the family, as there is the potential to having to pay higher estate taxes. It can result in the unfair division of the art resulting in family conflict and litigation.
“Art is left to loved ones or other individuals, donated to charity directly, or in trust at the death of the collector. Proper planning means that the artwork is transferred to others very tax efficiently,” explains Frank Seneco, president of the advanced planning boutique Seneco & Associates.
“Unfortunately, many times wealthy collectors have adopted the default option of not properly planning.
For example, the collector is not sure which family members to leave which pieces to resulting in procrastinating and procrastinating until it’s too late. However, smart planning can often resolve these issues. One approach involves using corporate entities to own the art. This approach can not only address many ownership issues, it can simplify probate as there would not be the need to retitle the art.”
When dealing with meaningful and valuable collections, proper planning is more than constructing an estate plan.
According to Evan Jehle, partner of FFO Business Management & Family Office, “Many of the ultra-wealthy have substantial art collections that they have not appropriately included in their estate plans.
But, it’s more than just making sure the artwork is addressed in the plan. For example, with our clients we make sure they build files of ownership to make sure no questions arise concerning provenance. These files include certificates of authenticity, bills of sale, insurance records, and the like.
A good rule of thumb is that the greater the distance between the collector and the artist and the older the artwork, the more likely there will be questions of provenance.”
Many wealthy individuals from business owners to celebrities do not construct effective estate plans. This is also true of a percentage of affluent art collectors. As in all these situations, by working with qualified professionals, the prosperous are able to ensure their wealth is passed on to whom they choose and done so while mitigating taxes.