Art And The Importance Of Succession Planning

Randall Willette Fine Art Wealth Management 17 February 2011

Art And The Importance Of Succession Planning

A new generation of wealth is emerging for which art is increasingly becoming an important component of tax and estate planning that they wish to put under the care of trust and estate practitioners.  A growing number of high net worth individuals are art lovers, own collections or actively buy and sell in the art market. They require someone who understands and appreciates the significance and pleasure of investing in art of high value - whether it is paintings, sculptures, antiques or precious coins.

Most importantly, today’s art investors require a comprehensive art succession plan tailored to their private collection, which will preserve and protect the value of their art assets for future generations. 

Dealing professionally with art requires time and extensive knowledge. Obtaining recognition as an art expert generally requires intense study, whether theoretical, academic or practical. Information relating to origin, which is often several hundreds of years old, does not always prove as reliable as one would wish.

Since the artist who created the work of art may no longer be available, the expert must make an assessment as to the extent to which he believes the piece of work can be attributed to one or other artist on the basis of years of study and experience. Equally important, the proper documentation or an illustration in a book can decide whether a painting has a lower or higher value. Executors and trustees would be wise to seek advice from an art succession planner who has no vested interests in the art and can draw on the expertise from both the academic and commercial art worlds.

Implications for trust and estate practitioners:

Just as trustees and executors must undertake proper due diligence with regard to financial investments, the same holds true for art. Specifically, this is needed to mitigate risks resulting from authenticity disputes, title claims, restitution and Holocaust claims, art fraud and even theft.  However, independent and objective advice on art is not always easy to obtain. There are a variety of such experts within the art market, from art historians and dealers to valuers and restorers. Ideal credentials for experts should include membership in officially approved associations and/or vetting committees, participation in major international art fairs, and/or recognized leaders in their field or consultants to major museums and collectors.

Tips for a well-designed art succession plan:

Here are a few suggestions for trust and estate practitioners in developing a well-designed art succession plan:    

Establish an art due-diligence procedure - To mitigate potential risks to trustees and executors one should establish a detailed art due-diligence procedure when accepting art in trust. Attributions of works to certain artists can and does change and adequate research and regular review ought to identify any issues in this regard. This includes physically inspecting the property and reporting on environmental and security conditions in which the property is being held.

Maintain a complete inventory of the collection - When creating and updating a wealth transfer plan, proper documentation of the art assets is vital.  Along with an up-to-date inventory, authentication documents and the provenances (origins or source of the art and collectibles and histories of subsequent owners) should be also included. If not, obtain written opinions from one or more recognized experts in the field as to the work’s authenticity and dating. Complex collections may benefit from specifically designed software.

Know the collection's value - For art and collectibles of any significant worth, an appraisal or valuation of each item in the collection from a qualified professional (e.g. one which meets industry standards of "best practice") and will meet requirements set by the tax authorities in the relevant jurisdiction.  

Plan in advance - With some forethought and expert art advice, careful planning now could yield significant benefits in the future, including financial security for the family, an opportunity to minimize potential tax liability on the art and the chance for the owner to leave a lasting legacy through proper preservation.

Consider charitable gifts - When philanthropy is one of the goals, consider beginning discussions early and establish formal agreements with the recipient charities.  Identify early on the charities the owner would like to benefit through gifts from the collection and what if any, restrictions they wish to place on the gift. Keep in mind, however, that as a result of significant changes in the art world, it is no longer as easy to give a collection to charity and many museums have become more selective in accepting art works.

Develop an orderly disposal strategy - Disposing of an art collection is easier said than done.  There are a relatively limited number of buyers for particular works of art and achieving the appropriate price is not guaranteed.  As such, working with an expert advisor to develop the best execution strategy is critical.

Avoid a forced sale - Relying on potential sale proceeds to pay the estate tax after a death could be a gamble that could hurt surviving family members. Consider the estate's liquidity and develop ways to pay the estate tax other than through a forced sale of the collection.

Due diligence includes verifying bills of sale or other evidence of ownership and checking the work against the relevant register of stolen or looted art. In addition to receipts and other transaction documents, insurance details and export licenses should be used to provide insight into the value of the work of art, the whereabouts at time of transfer and the presence (or absence) of good faith on the part of the owner.

Taking into account the wishes of family members:

Estate practitioners should work with an art succession planner to take into consideration the wishes of family members.  For example, are they interested in keeping the collection intact? Do any of them want specific pieces in the collection for themselves, or do they prefer to receive the proceeds from sale of the collection? The answers may have a major bearing on the ultimate shape that a succession plan takes. Creating the right plan for an art collection requires a personal touch, taking into account the unique financial needs, interest in providing for heirs and other beneficiaries and the nature of the assets involved to chart a creative and sound financial course that serves the family effectively over time.

Establishing the correct art holding structure

Having created or inherited a collection, many clients will wish to ensure it is preserved both during their lifetime and for future generations – either for their family or of art lovers more generally.

Ownership through a trust structure can offer significant advantages over direct ownership, in terms of preservation of wealth generally and in particular in relation to art collections.  The very wide range of trust formats available and the huge flexibility which careful drafting can incorporate into trust instruments allows structures to be tailored to the needs of the particular client and collection.  The main areas in which trust structures can offer advantages over direct ownership are in succession, asset protection, and tax planning. 

Ownership through a trust simplifies the situation on the death of the collector. 


Creating the right plan for an art collection requires a personal touch, taking into account the unique financial needs, interest in providing for heirs and other beneficiaries and the nature of the assets involved to chart a creative and sound financial course that serves the family effectively over time. The potential problems and pitfalls facing collectors and owners of art are numerous and need careful consideration in order to ensure the best results for the collection, the collector and potential beneficiaries of the art. 

Randall Willette is on the editorial board of sister publication WealthBriefing and managing director of Fine Art Wealth Management, a consultancy dedicated to integrating art into the wealth management strategy for wealth management professionals


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