For artists and art collectors, the estate planning process involves some unique considerations that do not come into play when planning for the distribution of bank accounts, real estate, stocks, and other common types of assets. From tax implications to preserving your vision or your legacy, and from curation to controlling display and distribution, when it comes to estate planning for artwork, there is more involved than meets the eye.
This article provides an overview of some of the major factors that artists and art collectors should consider when planning their estates. At the end, you will find initial checklists that will help you begin thinking through some of the key questions to prepare for the estate planning process. Of course, each piece and everyone’s personal circumstances are unique, and these checklists should not be used as a substitute for speaking with a qualified estate planning attorney.
Considerations for Art Estate Planning
Three Basic Options for Estate Planning with Respect to Artwork
To level set, let’s start by looking at your options. When it comes to disposing of artwork as part of your estate plan (of course, we are using “disposing” in the sense of distributing your assets, not simply getting rid of them), you have three basic options:
- Sell your collection and distribute the sale proceeds to your heirs or beneficiaries;
- Transfer your collection (either in whole or on a piece-by-piece basis) to your family members or other loved ones; or,
- Make a charitable contribution of your collection (in whole or in part) to a museum or other institution.
Of course, there is no “right” answer here, and what you choose to do with your life’s work or your collection is completely up to you. While taxes and other issues should be considerations, rarely should they be the driving force behind what you ultimately choose to do with your prized possessions.
Transfer During Your Lifetime or After Death?
The next question to address is whether you will transfer your artwork during your lifetime or after your death. Each option has its own benefits and limitations, and a variety of other factors – including timing – can all come into play as well.
Artwork-Specific Tax Issues
The above example is just one way in which estate and gift taxes will come into play. Due to the inherent challenges involved in valuing works of art, tax planning will necessarily be an important (though, again, not necessarily determinative) consideration for developing your estate plan. For tax purposes, obtaining a supportable valuation for each of your pieces will be another critical first step, and this is why we recommend seeking an independent appraisal for both artists and art collectors in the checklists below.
Retaining Posthumous Control of Your Portfolio or Collection
Beyond deciding who will be entitled to receive your artwork, do you care what happens to your creations or your collection after you die? For many artists and collectors, the answer is unequivocally “yes.” If you want to retain control over your artwork posthumously, you have options for doing so, but you need to set up your estate plan accordingly. From limiting commercial use to setting aside funds for preservation, there is an almost endless list of options for preserving your works and your legacy long after you are gone.
Choosing the Best Estate Planning Tools to Achieve Your Goals
All of the above considerations will ultimately help inform the decision of how to best structure your estate plan to achieve your goals. Revocable living trusts, irrevocable trusts, charitable trusts, and lifetime gifts are all viable options, and making sure that your final wishes will be respected while minimizing your estate’s tax burden may require a combination of a number of the different tools that are available. Depending on where your pieces are located, you may need to consider international estate planning tools as well.
Checklists: Estate Planning for Artwork
Estate Planning Checklist for Artists
If you are an artist, you can use this checklist to begin working toward building your estate plan:
- Create an inventory of your works. This should include both published and unpublished works in all media and in all galleries, studios, storage facilities, and other locations around the world.
- Collect copies of any documentation relating to your works, including consignment agreements, gallery contracts, and commissions.
- Have each piece you own appraised by an independent appraiser.
- Think about who you want to own your works in your absence. Do you want to leave gifts to your family? Do you want to make charitable donations of your works to private or public institutions?
- Make sure you understand the intellectual property aspects of your portfolio, and make sure you plan transfer of your intangible assets as well as your physical works.
- Hire someone to advise you on the tax implications of lifetime and after-death transfers.
- If you plan to make gifts during your lifetime, make sure you know how to appraise your works and properly document your gifts for tax purposes.
- Consider hiring an executor with specific knowledge and experience in managing and disposing of your type of artwork to administer your estate.
- Consider whether you want to place any restrictions on the display, commercial use, or sale of your works after your death.
- Meet with an experienced estate planning attorney who can help you develop and implement a comprehensive estate plan.
Estate Planning Checklist for Art Collectors
As an art collector, you probably already have strong thoughts about what you want to happen to your collection after you are gone. This checklist is intended to help you avoid overlooking any key aspects of the estate planning process:
- Create an inventory of your art collection. This list should be entirely comprehensive, including pieces located in vaults, vacation homes, and other locations around the world.
- Have each piece in your collection appraised by an independent appraiser.
- Think about your goals for your collection. Do you want it to remain in the family? To be shared with the public?
- Have open discussions with your intended beneficiaries to understand their interest and willingness to care for your collection.
- Consider whether you are willing to depart with certain pieces (or your entire collection) during your lifetime.
- Consider whether it may make sense to hire a professional caretaker to manage your collection after your death.
- If you intend to retain possession of your collection until your death, consider the estate and gift tax obligations associated with the various estate planning options that are available.
- Consider whether your collection is likely to increase substantially in the future, as this will have implications both from a tax perspective and in terms of distributing your estate.
- Consider whether you want to treat any individual pieces separately from the rest of your collection – whether for sentimental, financial, or other reasons.
- Build and implement a comprehensive estate planning strategy that achieves your personal, family, charitable, tax, and legacy objectives.
Schedule an Initial Estate Planning Session at Jiah Kim & Associates
If you are an artist or art collector and would like to speak with an experienced attorney about putting together your estate plan, we encourage you to contact us for an initial consultation. We develop lifetime relationships with our clients, and will work closely with you to ensure that your estate plan fully executes your final wishes. To get started, please schedule a consultation online or call (646) 389-5065 today.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.