THE ART COLLECTOR'S DILEMMA
In the wake of the record-shattering $110.5 million Basquiat sale earlier this month, many collectors of Basquiat are experiencing the growing pains that accompany increased value. As art collections gain value, insurance rates may increase, appraisals are required and selling works becomes more expensive. It is certainly a good problem to have, but ubiquitous in the expanding art market.
To prepare for the growth in the art market, passionate collectors and investors alike are strategizing for the longevity of their art collections as they would for any other part of their estate. Chairmen of HighView Financial Group offers some insight, “Some of these art collections are worth an absolute fortune, but what do you do with them? In many cases, the kids don’t want them. That then becomes the dilemma: how long do you enjoy it and do you want to leave the burden of getting rid of it to the estate.” Let’s break down some of the options for the art collector’s estate planning dilemma.
If you have recently inherited artwork, turn to a professional before selling. Selling art can be complicated; works need accurate valuations and appropriate introductions to the market. Katya Kazakina offered this advice in Bloomberg for those thinking about selling their art: wait to see if President Donald Trump is successful in overhauling tax rates. Experts advise caution on that. “Your taxes might be lower but what happens if the art market shifts?" said Shari Levitan, a partner at the law firm of Holland & Knight who advises wealthy families with substantial art collections. She writes,“you never know if you are at the height of the market until you are on the other side sliding down.”
With capital gains taxes currently on the rise, art assets that have grown in value are costly to outright sell. Donating art to a museum is one solution that relieves the tax burden of turning profit on an artwork. For those passionate collectors, donating art is also a great way to pass a collection on for other art lovers to enjoy.
Bloomberg recently reported that “gains can be offset by donations of cash or art during the year of the sale, or carried forward from prior years. Donations of art to public institutions or museums may offset up to 50% of the donor’s income. This deduction is capped at 30% for donations to private institutions and is phased out based on the owner’s income.”
Eli and Edythe Broad and The Broad Museum in Los Angeles
Many collectors that have built formidable collections over generations have museum donation schedule planned years in advance. Often, the end game for some of the largest collectors is opening a private museum to store and showcase their pieces. Director of art and finance at Deloitte, Adriano Picinati di Torcello, explains that the biggest collectors “buy for passion as the main reason. The money aspect is the second thought. It’s not just pure investment; it can also be a store of value”.
These thoughts surface the complexity of today’s art collectors. Where some collectors relish in their passion for the arts, others favor the investment potential of their acquisitions. No matter, estate planning is crucial. To incorporate art assets in your portfolio, without assuming the responsibility of estate planning, invest with Arthena. E-mail firstname.lastname@example.org for more information.