The Wall Street Journal ran a good article in early March about how families should or can deal with passing art collections along to the next generation. As appraisers we work with many families look for assistance with equitable distribution and also assistance in liquidating art collections and personal property when heirs are not interested in further ownership.
Fellow appraiser Xiliary Twill of the Art Asset Management group forwarded the article to me. It is a good article for all appraiser to read and take into consideration as it touches on how much of the collection to pass on, if wanted, placing the collection in a trust, and reducing the chances of fighting over the collection.
Overall a good article for the appraiser.
The Wall Street Journal reports
Source: The Wall Street JournalSo, how should families fortunate enough to have valuable collections decide what to do with their art or other objects? Here are some options.
Leave your kids a token. The first step is to ask, "Is the next generation even going to want this artwork?" says Mary Schmidt, an estate-planning attorney in Boston.
If so, are they going to want it all? She had a client who acquired dozens of signed prints by Renoir and Miró, among others, over several decades. The collection was so large that she rotated it seasonally in her home, storing the rest and spending a small fortune to insure it, Ms. Schmidt says.
After two years of deliberation, the family matriarch and collector, then in her 90s, decided that leaving all of her art to her kids would be too much—they had no space for it all, and she had other assets to leave them, Ms. Schmidt says. So she let each of her three children pick one work after her death and donated the rest to charity.
What if one child chooses a print worth $1,000, and another chooses one worth $100,000? The executor had everything appraised, and the disparities were offset by cash from the rest of the estate.
You can specify who will receive designated items of "tangible property," including works of art, in your will, says Linda Hirschson, a shareholder at law firm Greenberg Traurig in New York. But be careful: In some states, including New York, those instructions must be in the will itself and not in a separate memo to be legally enforceable.
Keep the collection intact. There are situations in which it makes sense to sell or donate an entire art collection—such as when its value would be diminished by breaking it up.
Ms. Hirschson worked with an estate in which a couple, both of whom lived to be around 100 years old, had amassed a collection of Audubon prints that was sold intact. That was what they wanted, as it was one of the largest collections in the world, she says.
Put the art in a trust. If you want to get the art to your kids but also get it out of your estate, consider using a trust.
Mr. Graber has adapted a strategy used more commonly with real estate: putting the property in an irrevocable "grantor" trust, and naming the children as its beneficiaries. The artwork is pooled together in a limited liability company that is then sold to the trust. Then the parents lease it back for their own use.
Say the artwork is appraised for $1 million, and then it appreciates in value inside the trust. The appreciated value then would belong to the heirs—and the work would be out of the estate.
The strategy hasn't been legally tested, Mr. Graber cautions, and he has applied it only a few times to artwork. It has passed muster with the Internal Revenue Service when used with real estate, he says, as long as "the sales price was reasonable and the rental rate was at fair-market value." (In some places, sales tax may be owed on the sale of the art to the trust.)
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