Estate Planning for Art Collections: What Trustees and Fiduciaries Need to Know

“Estate Planning for Art Collections: What Trustees and Fiduciaries Need to Know,” that is the subject of today’s ACTEC Trust and Estate Talk.

This is ACTEC Fellow John Challis of St. Louis, Missouri.

Art collections present unique challenges in estate planning, from verifying authenticity and ownership to protecting, managing, and ultimately transferring valuable works of art. For fiduciaries, understanding the legal risks and practical considerations involved can help preserve both the collection’s value and the collector’s intentions.

Joining us today is Mari-Claudia Jiménez, partner and head of Withers Art Advisory. She advises clients on the acquisition, management, and disposition of fine art and significant collectibles. Welcome, Mari-Claudia.

Mari-Claudia Jiménez: Thank you so much, John. It’s wonderful to be here.

John Challis: Let’s start at a high level. Estate planners deal with all sorts of assets; what is it about art that makes planning for and administering an art collection different?

Mari-Claudia Jiménez: Well, art is fundamentally a passion purchase. Ultimately, collectors are buying things that they’re very excited about, feel passionate about, and that they are uniquely connected to. And I think that’s also what makes them difficult to plan around because there are lots of issues relating to how you value these types of objects.

The average art collection or collectibles collection can include everything from priceless works of art to furniture, cars, wine, dinosaurs. So, you can’t just have one typical way of looking at this asset class. And I think that that’s one of the hardest things for fiduciaries to deal with, which is it’s not stocks, it’s not bonds, it’s not a public company, it’s not the kind of thing that they’re more used to. Those kinds of complexities really are what complicate planning around them.

In addition, there’s all sorts of unique issues relating to the objects themselves; how you store them, the authenticity, all of these things make the values fluctuate. And so that’s what makes them particularly challenging.

John Challis: You’ve described this as a life cycle. Let’s start at the beginning, what should an estate planning lawyers be thinking about and advising clients regarding the acquisition of art?

Authenticity, Ownership, and Legal Risks When Acquiring Art

Mari-Claudia Jiménez: At every stage, there are different complications. And one of the most important things, of course, is when you are buying an artwork, you need to make sure that if you are spending a significant amount of money that you are getting what you paid for.

The most important issues here are ones of authenticity as well as title. Sounds like it’s obvious if you’re buying an extraordinary artwork that you are in fact buying Picasso and not a wannabe Picasso, but you would be surprised. Oftentimes, even in the greatest collections, things come up 20, 30, 40 years after a work is purchased where suddenly there is a reevaluation as to the attribution or to the authorship of a work. and something that was considered to be a significant store of value is suddenly worth much less.

Same thing with title. Issues of Nazi-looted art come up with some frequency when it comes to old master paintings or impressionist works that may have been in Europe during 1933 to 1945. These are things that you really have to make sure of before you buy the object to make sure you’re not buying yourself a lawsuit down the road.

Of course, there are also the typical issues that come up from a Sales and Use Tax perspective and any kinds of issues relating to situs or any kind of endangered species. These things come up fairly often when you’re dealing with art deco, artworks, or even things like pianos. Ivory is obviously extremely restricted in most parts of the world and so, you may think that you’re buying a piano in Europe and all of a sudden, you can’t get it into the United States because the ivory makes it unexportable.

John Challis: So, let’s assume that the client has purchased the art. At some point it may end up in a trust or an estate and become someone else’s legal responsibility. What does good stewardship of a significant collection actually look like for a trustee or other fiduciary?

Safeguarding Art Collections: A Fiduciary’s Responsibilities

Mari-Claudia Jiménez: The most important part is really safeguarding information and having as much information as possible about the objects that form part of the collection. For a lot of collectors, it’s natural to just live amongst the objects they’ve collected and not really think that much about the paperwork or the things that they might have to pass on to the next generation. But what ends up happening with fiduciaries and with beneficiaries is that they weren’t part of the collecting journey. And ultimately, when it comes time to sell, they really have absolutely no idea where mom or dad purchased an object or what the long-term plan was for that particular object.

Really the most important thing in terms of stewardship is making sure you have inventories of the objects, current appraisals because we see all the time that people plan around perhaps the purchase prices, when in fact markets change over time. You want to make sure that those objects are worth what you believe they’re worth at the time that you’re planning around them.

And then also just conservation. There are a lot of collectors who unwittingly actually damage artworks they own because they put them you put a drawing in a very sunny room or you put an oil painting in a very humid place. Those are things that can actually damage the long-term value of an artwork even though you’re not actively doing anything to do so.

I think that having as much information as possible and having as many conversations as possible between the collector and the fiduciaries before they’re passing is really the smartest way to go in terms of making sure you have good stewardship of the collection.

John Challis: Now let’s turn to succession, because I suspect that’s where most estate planners encounter these issues. Now, a collector may have spent many years assembling a collection that means an enormous amount to that person, but how dangerous is it to assume that the collector’s heirs will feel the same way about it?

Succession Planning: Will the Next Generation Want the Collection?

Mari-Claudia Jiménez: Very dangerous in fact. I think, unfortunately, what we tend to see more than anything is that the second generation, more often than not, has very little interest in what their parents or grandparents even may have collected. And I think it’s really dangerous for a collector to assume that their passion will live on in that next generation. So again, it’s really important to be prepared to have these conversations.

The next generation’s tastes are often very different. If you think back to some asset classes that were very popular, for example, in the 70s and 80s; silver, brown furniture, porcelain, these are the kinds of things that a proper wealthy person would be buying a lot of at that time. But now you have a very hard time selling those types of objects because people don’t live like that. Most of us don’t have the staff of 10 to polish the silver all day long.

So, it’s very difficult to sell extremely valuable objects that have changed in taste. And I think that that’s ultimately part of the problem is the next generation, when you pass on the art or the objects without talking to them, you’re essentially giving them a problem rather than a gift.

John Challis:  And I think often we focus so much on tax and transfer planning when perhaps the first question should be, does anybody even want this collection?

Mari-Claudia Jiménez: Completely.

John Challis: And oftentimes we hear, “well, I’ll just leave it to a museum.” What could be wrong with that assumption?

Donating Art to Museums: Understanding the Restrictions

Mari-Claudia Jiménez: Ah, that is probably the worst assumption that people make. And I think that’s really because everyone just assumes that museums want objects. But unfortunately, at this moment museums are saturated with objects, they have way too much. And so really, I would say that in almost every case museums do not want the things that you want to give to them. It’s actually quite rare that they will take an object. Usually, it needs to have very few encumbrances:

• You need to make sure that they are allowed to sell it at some point in time,
• that they are not restricted in how often they have to exhibit.
• And then they also usually want a significant endowment from you to maintain those objects.

So, there’s a lot of strings attached even when you are successfully able to leave something to a museum. Most of the time museums’ storage rooms are full of objects that have all of these restrictions that they can’t actually deaccession and then they really don’t want to exhibit because they’re not at the caliber of what they would want to show in their galleries.

So definitely don’t assume if you do want to have a charitable gift, make sure you’re having those conversations during the collector’s lifetime way in advance. And also make sure that what you’re giving the museum, if they do accept, checks out. Issues — as we talked about earlier, with regard to provenance, to authenticity, to title — those will all come back to haunt you later. Make sure that the museum is getting exactly what you’ve promised them.

John Challis: So, if we assume the family doesn’t want the collection and a charitable disposition isn’t the answer, the fiduciary may need to be in a position to sell the collection. Is an auction automatically the best answer?

Selling Art Collections: Auctions Versus Private Sales

Mari-Claudia Jiménez: Not always, but I would say that it is the most common choice for estates. And the reason is, it’s obviously the most transparent way to sell an art collection. Auction is public. The entire world is invited to participate. You can certainly feel comfortable as a fiduciary in terms of your fiduciary obligations and the beneficiaries that you owe those obligations to, that you have put these out in a public manner and that anyone who could have participated did, and therefore the highest price was achieved.

That’s not always true for specifically very unique objects. There are sometimes certain artworks that only two or three people in the world would have an interest in and sometimes if you sell them privately you can target those two or three people and they’re willing to pay an extra premium not to compete at auction.

But again, from a fiduciary standard, it’s always much easier and much more flexible for an estate to sell at auction. There are issues of discretion. There have been situations with estates where perhaps there is an object that is not in vogue at the moment, and they don’t want to associate with the larger collection; so, a private sale of that specific object is appropriate in that circumstance. But I think that there’s a lot to be gained from the larger marketing and sort of halo effect that you can get from a big auction around one particular collector’s collection. That’s why usually auctions win in an estate context.

John Challis: That’s a great place to leave it.

Mari-Claudia Jiménez: Mari-Claudia Jiménez of Withers, thank you so much for joining us and helping us think through the life cycle of an art collection from acquisition and stewardship through succession and ultimately disposition.

Mari-Claudia Jiménez: Thank you so much. Great to be here.

John Challis: And thanks to all of you for listening to the ACTEC Trust and Estate podcast.

 

You may also be interested in

• Asset Protection for Art: Issues Arising in the Lifecycle of Acquisition to Disposition (Jan 2025)
• Litigation Issues in Buying and Selling Art (Feb 2021)

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