Estate Planning? Don’t Forget the Art!
The art collection is often overlooked when it comes to planning and safeguarding the value of the overall wealth portfolio, which can lead to problems when it is passed on to the next generation, warn Edie Hu and Michael Troth
f all the types of passion investing, art is arguably the most personal and most emotional. Given the high prices for art, a single collection can constitute a sizeable portion of a person’s net worth. But are the proper steps being taken to ensure the security of these investments for the unforeseeable future?
There are too many cases where a collector has not planned properly and, upon their death, the heirs are burdened with disposal of the collection and fight over the handling of the art collection. One of the most acrimonious cases occurred in New York in 2003, after the death of one of the most important Chinese painting connoisseurs. His death prompted his son and one of his daughters to carry on one of New York’s longest-running fights over an estate, which has not been settled to this date.
What can collectors do to safeguard not only the value of their investments but perhaps also ensure that the enjoyment of their passion is passed on and the goals of their legacy are achieved? Some banks are now offering wealth planning for art collections. This will allow the art to be held in a trust that provides proper stewardship of the artwork and a continuing management plan in the event of the incapacity or death of the collector. The collection will be protected with proper security and insurance and kept intact to avoid the need of a “fire sale”.
Art can be consolidated within a broader estate plan that can hold art as well as other assets and can be structured to be tax efficient. By doing so, the family’s finances can be kept private and one can avoid probate and the associated expenses, publicity and delays.
Another benefit of art held in trust is that it can be kept in the residence through a specifically structured art loan agreement, which allows the collector to enjoy the art in the home as well as unlock liquidity in an otherwise illiquid asset.
The objectives that go into financial investment planning are the same ones that should be applied to the objects of passion investing such as art, and the same concern should be taken to protect them.