This article examines the challenge for families working out the benefits and risks of passing on art collections and how to weigh the choice of selling - or keeping - fine art.

This publication has carried a few expert commentaries about the world of wealth management and fine art recently (see examples here and here), and the editors here are delighted to share these insights from Celine Fressart, who is head of special projects at 1858 Ltd Art Advisory, an international, London-heaquartered firm which, as its name suggests, provides expertise for art collectors/investors. The views expressed here aren’t necessarily endorsed by this publication.

With 10 per cent of the worldwide wealth changing hands every five years and an increasing number of high net worth and ultra HNW joining the ranks of the international art market buyers, the question of collecting becomes more complex with each change of generation.
 
There are various ways of dealing with investments of passion in general, and with art in particular. In a best-case scenario, the passion is shared and transmitted to the children who understand the value of your collection. If you started collecting at the right time, the evolution of the art market is likely to have been in your favour from an investment perspective.

However, more often than not, the next generation doesn't share a passion for the collection and is not emotionally or in any other way invested in the collection. Often the children simply do not see the point in spending time and money to carry on the collection. The financial upkeep of art can be sizeable when you factor insurance, storage, transportation and in some cases restoration into the equation, which can swiftly transform a well-meaning inheritance into a not so desirable burden. 
  
As an advisor, I regularly find that a lack of knowledge, fractious relationships within a family, different lifestyles and tastes leave families with little option but to dispose of their art collections. This is understandable as not everybody can or wants to open a foundation to preserve the art so the sale of an art collection can sometimes solve many problems existing or yet to come. This is becoming an increasingly preferred solution thanks to professional art advisory associated services within the wealth management community.  

The future of the collection, including divestment options, should anything happen to the collector, should be part of the collecting process and planned ahead in tandem with impartial professionals who will help optimise the result. Gregor Kleinknecht, a partner specialising in art law at leading private client firm Hunters Solicitors, agrees: regardless of whether the next generation shares your passion for art and the objective is to transition the collection in the most efficient way to the children, or whether the next generation is disinterested and the collection is to be divested (perhaps with some pieces being gifted or loaned to public institutions), the key to success is obtaining early and holistic advice. 
 
New generation, new tastes
In the art auction world, the plethora of single owner sales demonstrates that collections generally do not pass to the next generation. In the art advisory field, the same phenomenon is met; programmes for building the next generation's taste and knowledge aren't always of interest, whereas questions around how to divest a collection the best possible way very often come up in our experience and often private banks, lawyers and family offices bring us in to discuss this point.
 
The main reason for this is the understanding from the older generation that their children do not share their passion; sometimes the objects of affection are even a source of hate and seen as something to "get rid of". Classical furniture is a good example: unless stamped and having been thoroughly maintained with a great deal of care, marquetry and ormolu pieces do not fit in most modern mansions. Such furniture is put at risk by air-conditioned environments and modern lifestyle to name a few causes of decay. However, the current art market for these pieces is also in decline, as the basin of collectors for such pieces is getting rarer by the decade. What to do then? 

When and how to divest for optimum results?
In our 15 years of experience, divestment occurs at three crucial moments: when the collector passes away; when the collector is about to pass away and is concerned about the wealth left to the next generation; or when the collector decides he has exhausted his passion and prefers to celebrate this by a sale.
 
And from experience again, the last situation is the most comfortable for everybody; time is taken to listen to the collector's passion, but also to hear what the next generation has to say about this and the best decision can be consequently made in agreement with everyone.
 
The passing of a patriarch is always a sad and complicated moment. Many actions need to be urgently taken, most of the time along with professionals which were unknown to the new generation a couple of months before, without established trust or confidence, and with the view that everything has to be solved quickly to allow the grieving to take place. Art assets are viewed as part of the burden; should they be shared between the various family members? Or put up for sale? And if so, how are proceeds distributed between the heirs?
 
But without knowledge of the current market, how can informed decisions be made? It is not rare to suddenly see the heirs surrounded by new "friends" vying to obtain fees without frankly providing a measured and sensible, timely solution in the family's interest, which only adds to the woes.

Some collectors try to anticipate and arrange succession planning before it is too late. Each family has its stories, but as a result, a valuation for inheritance purposes is often key to determining who will inherit what. Reluctance to sell is common, and sharing the collecting passion across children and relatives might be a good idea. But the value of a collection often lies more in the body of work than in the individual works themselves, so even following this dispatch - and if by luck no issues between siblings occurred at that stage - the pieces will probably be individually sold at a less important value than if they had been sold as a collection. 

History and stories
What is the benefit of selling a collection when alive?

They are multiple. Notwithstanding the fact that the collector himself saves his family from potential conflicts (a lump sum is easier to equally share than a collection of paintings with various sentimental attachment linked to them), collections always sell globally better when a global history and provenance is conveyed by the collection and by each item part of it.

Remember the results of the Yves Saint Laurent sale in 2009? Most items broke records in their fields - and a key reason was linked to the provenance - they were not simple items, they were belonging and selected by Yves Saint Laurent and were acquired at the so called  "Sale of the Century"; would-be buyers were acquiring a sense of history.
 
Buyers are eager to buy items with a history, with a provenance they can identify with. And it is important for the success of a sale to be able to share a portion of this history with potential buyers, let alone for the collector selling to see the culmination of their passion in a successful sale.

Collectors then use their leverage in the market place to find out about the best partners to use for their divestment. They can follow every step of the process, use their know-how of the market to create a buzz - or not as the case may be, but they have the full control of the situation and can, hopefully, happily part with their collection.
   
The best strategy is made to measure
Over the last six months, we have concluded dealing with collections of passion for two families, whose only common point was that the heirs' generation were not sharing at all the passion of the previous one, and that the eventual sales achieved exceeded expectations.
 
In the first case, the patriarch of this very important family had passed away fifteen years ago, and the collection was left dormant in a storage facility. Neither of the two heirs were willing to take action and did not know who could help, while the storage and insurance costs were mounting. As in many UHNW families, they were also living in the fear that other parts of the family would be obstructive.
 
Therefore, it was essential for a discreet sale. We undertook an inventory, valuation and coordinated a selling strategy culminating in a single owner sale with minimal transactional costs. The sale achieved exceptional results with many items exceeding the high estimate.
 
In the second case, the patriarch decided it was time for his family to enjoy what had been a burden to them for the past 30 years, and to proceed to the sale of his very special collection. Due to the nature of it, it was decided to sell it in one lot, and to use the name of the collector (with his agreement), which created a strong identity to the lot. This gave personality to the pieces and created an exceptional story from a PR and marketing perspective. With a sales result exceeding four times the low estimate, needless to say the collector and his family were overjoyed. But more than money, it was the recognition achieved by the collection that he had spent over a quarter of a century building.
 
In both cases, it demonstrates that if a passion cannot be shared with one's own children, it doesn't mean it can't be shared with someone out there - but as for collecting well, the timing when selling is key and can bring as much satisfaction as the collecting process itself.