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

Hong Kong Tatler - - | Wealth Management Opinion -

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.

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