How To Create an Estate Plan for Your Art Collection

Artwork Archive | November 16, 2015

Your Art Collection Counts as a Valuable Asset

Collecting art is less about documents and appraisals and more about passion and a genuine love of the craft.

If you’re feeling behind on the management of your art collection, you’re not alone. Many art collectors do not consider their art collection as a part of their will until a later stage.

When you decide to plan the future of your art collection and your estate, you have a few options that we review in this article.

Start an Estate Plan With All Your Documentation

The first step, before you choose where your art will go, is to gather all the appropriate provenance documents such as appraisals and bills of sale.

We heard from Mark Van Mourick, president of the wealth management firm Optivest, Inc., on how to start planning your art estate. “It is important to properly catalog, photograph, appraise and insure your collection,” Mourick says.

If you are an Artwork Archive member, all of these documents are stored in the cloud and can be exported to any device at any time.

How To Discuss Your Art Estate Plan with Your Family

One difficult conversation to have is discussing the future of your art collection with your children and relatives. While no one wants to discuss or prepare for when you are gone, there is a chance your heirs are not interested in maintaining your art collection. Instead, they may prefer selling it.

“Have a candid conversation with each child about which pieces have sentimental value to you and to them,” Mourick suggests. “Phrase the question in a way that gives them freedom to respond honestly and remember not to get offended by their response.”

Once you have established how your family members feel about your art collection, you can begin making plans for the future. The goal of creating an art estate is to ensure that your collection is taken care of and in a place that makes you feel comfortable. “It is good to establish who you trust to appraise the collection and/or sell it upon your death (if your heirs do not want it),” Mourick elaborates. “These advisors can assist in their areas of expertise and relieve the family of a potential burden after your passing.”

When planning your art estate, you have three options:

1. Sell Your Collection

Selling art is more expensive than selling other assets. The capital gains tax on art and collectibles is 28 percent opposed to the usual 20 percent. You will also be responsible for paying a sales commission, taxes, and possibly shipping. If you know your family is interested in selling all or parts of your collection, it’s best if you are a part of the planning process. Your family may not be aware of the pricing of your art collection. If the pieces are sent to an auction, they could be sold at much lower than market value. Secondly, you want to have a say in the next person or organization that will care of a part of, or all of, your collection.

If the decision to sell is made after you pass, then the capital gains tax is usually reduced or eliminated. However, the entire value will be included in the estate for estate tax purposes. Selling your art is likely the most expensive process of the three options. Speaking with an estate planning attorney to crunch the numbers for you will help you weigh the pros and cons. If donating would result in a higher return on investment, via a tax deduction, you can be involved in where the artwork is donated. We will discuss this further later.

2. Leave Your Artwork to Your Heirs in an LLC

You may leave an entire collection or specific pieces to certain people in your will. Your heirs, although likely your family, do not need to be blood related. The technical term for heirs is a “non-charitable beneficiary.” You may leave your assets to whomever you choose based on any number of criteria. Include your collection resources with your inventory, such as appraisers, insurance agents, framing experts, gallerists, and any historians or specialists in your collection. The most important thing about leaving your artwork to specific people is giving them the resources to properly maintain it. If you are an artwork archive member, you can store these managerial documents within each piece's page in the archival system.

Transferring your artwork to an LLC is an alternate way to leave your artwork to your heirs. This will put the entire collection into the LLC, which can be left to multiple people. The family members included will then be responsible for the collection as a conglomerate. For instance if they decide to sell one piece, they will split the profits evenly. This is how you can avoid choosing specific pieces for specific family members, and having the artwork’s value get in the way.

When leaving your family members an LLC, they own the interests rather than the art itself. You may select one or more managers, which will be your heirs in this case, to control the art. The managers are usually responsible for maintaining appropriate insurance, display, storage, and making decisions regarding the sales of individual pieces. You will also want to leave collection resources and information with the LLC managers to aid in any sales, restoration, or maintenance.

3. Donate Your Artwork

If you choose to donate your art to a museum or charitable organization before you pass, you are entitled to an income tax deduction of up to 30% of your adjusted gross income. This is based on the value of the work at the time of the gift.

Donating your art to a museum upon your death is likely the simplest option. Your collection is delivered to the institution and your estate receives a tax deduction based on the current valuation.

In either scenario, it is your prerogative to specify any requests. If you would like your art displayed in a specific wing or whether you would like your name included next to the description, for example. These conditions should be articulated and agreed upon before the delivery of the artwork. Arduous conditions could jeopardize the charitable deduction for income and tax purposes or reduce the value of the collection.

One Alternative: Create Your Own Museum

This would be something to consider if there is no current museum open that is willing or able to oblige your donation criteria. Your collection should also be large enough to justify the upkeep and high costs of opening a new museum.

Your choices are unique to your art collection. Discuss your thoughts and concerns with your art estate planning attorney to get a better idea of what will be best for you and your family. The most important thing is that you move forward with what makes you both comfortable and fulfilled.

Start archiving your collection now and ease the work in estate planning. Sign up for Artwork Archive and download our Essential Guide to Collecting Art for more expert tips on preserving your collection's legacy.

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