When we covered The Most Value Art Collections in the World, we were looking at individuals with art collections worth billions of dollars. However, even more modest collectors need art estate planning.
Art collectors should avoid leaving ambiguity around any treasured pieces of art that they haven’t already transferred to their descendants. Unnecessary arguments don’t need to happen. The last thing a family wants is legal fees fighting over who gets what piece of art.
The value of each piece of art needs to be approximated as well in order to accomplish an even distribution of a parent’s net worth to their children.
We’ll also discuss how to include a piece of art in an estate plan and how ETChster makes it easy.
We’ll also discuss what plan is appropriate for your art estate plan so that you’re sure you’ll have everything in order.
How Does Art Fit into Estate Planning?
Estate planning is defined by Investopedia as:
Estate planning is the preparation of tasks that serve to manage an individual’s asset base in the event of their incapacitation or death. The planning includes the bequest of assets to heirs and the settlement of estate taxes. Most estate plans are set up with the help of an attorney experienced in estate law.
Art falls into the asset base as something that a son, daughter, grandchild or anyone else named in a will can inherit along with property, cash, furniture, stocks, etc.
Keep in mind that many countries and sometimes more local governments have inheritance taxes that apply to art. Above certain thresholds, the recipient might owe a lot of money if their intention is to keep a valuable piece of art.
Unlike inheriting cash, you can’t easily exchange part of a piece of art for cash to cover the taxes.
You may also have scenarios where you want to divide assets evenly on a value basis between descendants. One child may want more art than other assets. So how should the value of each piece be determined?
You’ll likely need an art appraiser to determine the value of each piece. You’ll need an accountant and tax attorney to help you determine the tax implications for you and your loved ones.
Who Benefits from Art Estate Planning?
We mentioned the tax implications of art estate planning for children and other descendants above. No one likes to pay taxes. Tax evasion is a crime but minimizing taxes owed within the confines of the law is known as “tax avoidance.”
Others may benefit as well. It is not uncommon for art collectors to will specific pieces to museums upon their passing.
In other cases, wealthy art collectors decide that a specific charity should benefit from the value of their art collection. Instead of donating the pieces directly to the charity, they may structure their art estate plan so that the pieces will be auctioned off, with the proceeds given to the charity(ies) of their choosing. Again, having the art appraised prior to auction is critical. The charity needs an understanding of how much cash they may eventually receive.
What Needs to Be Accomplished to Incorporate Art in an Estate Plan?
First of all, all art that will pass through the estate needs to be well-documented. Reasonably high-resolution photos of the piece that are well-lit need to be captured. Ideally, the piece’s name is included in the image file name.
For larger collections, a serial numbering system probably makes sense. You can then collect data on each piece in physical or digital files that reference that serial number.
For the establishment of value, you’ll want to be sure you preserve as much proof of provenance as you can. Bills of sale from where you purchased are great to include.
If your estate has classic paintings from hundreds of years ago, whatever you can use to show authenticity is vital. Appraiser reports fall into this category.
So assuming you have all of the above collected, you then need to decide who you want to inherit each piece and whether or not that choice makes economic and emotional sense.
Yikes! Sounds like a lot of work to get all of that together. Once you do, you’ll need to put it all together in a format that your attorney can understand and incorporate into your will. Painting X goes to descendent A. Sculpture Y goes to descendent B, etc.
Some art collectors attempt to put it all together in Excel.
How Does ETChster Make Art Estate Planning Easy?
ETChster’s Art Collector platform has estate planning tools built into the app. Etchings don’t have the same problems with NFTs that the crypto community is experiencing, but were built with provenance tracking and proof of authenticity in mind as well.
Once you Etch a work of art, the data is recorded permanently in The Encyclopedia of Objects and assigned an ETC number. This number is unique globally. If you have your own numbering system, each Etching has a field for that.
Instead of having photos somewhere and attributes of each work of art in a spreadsheet, the Etching holds it all including 5 photos per work of art.
The description is where you want to capture the story of the piece of art. How did you receive it? What does it mean to you? How does it connect with the artist and their broader story?
All of the above gets transferred to the new owner when you transfer the Etching, so they know they get the piece because it is in the will, but they receive the story and photos when the executor of the will transfers the Etchings out of your profile to the new owner.
For communicating with attorneys and updating wills, your collection can be downloaded at any time in a spreadsheet or shared with a hidden “Collection.”
For art collectors with valuable collections, the Pro plan is the right choice. You can hold 1000 Etchings instead of 100 and attach documents such as appraisals and bills of sale as well as videos to your Etchings.
Estate planning requires some work. However, you’ll find it relatively easy to maintain once you document your art in the first place. The endeavor is certainly worthwhile so that your choices make emotional and economic sense and don’t put undue tax burden on your descendants or cause your family to lose control of prized pieces unnecessarily.
The same cataloging work has additional benefits. If an unforeseen event such as a fire were to destroy a substantial portion of your net worth in fine art, you have accurate records for insurance. You also have a digital record that will live on with the permanence of the cliffside etchings, so future generations will be able to experience the digital images and read the story of the piece.