The market for fine art is thriving, and trusts and trustees are important in how the market works for the interests of those wanting to acquire and safely transfer these works. This article examines the territory.

The following article about the intersection of trusts and fine art is from Lisa Vizia (pictured below), director, and Karin Brehaut, assistant trust manager, Saffery Champness Registered Fiduciaries. The editors are pleased to share these thoughts with readers. The usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com if you want to jump into the conversation.

In May this year, the Codex Sassoon sold at Sotheby’s for $38 million to a private collector– a record-breaking sum for an ancient manuscript. Just days later, Sotheby’s completed the historic sale of the GRAILS digital art collection – generating almost $2.5 million. From historical artefacts, to NFTs, the art and artefacts market is booming again – and for investors, and their advisors, trusts can provide significant benefits when building and maintaining a collection. 

The art market has had a flying start in 2023, building on the significant recovery seen last year. 

That success was driven by several notable sales of private collections, including the prominent Macklowe collection, which included works by Rothko and Warhol and which Sothebys auctioned for $922 million; that of the late Microsoft co-founder, Paul Allen, which Christie’s disposed of for $1.5 billion. 

Such sums buoyed the market following Covid-19, with global sales in 2022 superseding the pre-pandemic figure of 2019 and increasing 3 per cent year-on-year (UBS). Clearly, private art collecting, long a passion for those with the wealth to pursue it, underpins the vitality of the industry.

But the motive for private art investment often goes beyond personal interest. 

The value of quality assets generally increases consistently, making art an effective hedge against volatility and an important part of a well-diversified portfolio. In addition, for many collectors, commitment to the arts is paramount to building a wider personal and philanthropic legacy. 

Amid this continued interest, though, the regulatory environment for the art market is evolving – creating complexities for collectors and their advisors. The impact of the EU Regulation on the Import of Cultural Goods continues to grow, particularly when coupled with the after effects of Brexit for UK-based collectors; while the Financial Action Task Force (FATF) recently published a report on the risk indicators for potentially illicit activities in the art space – such as transactions being used to finance terrorism or for money laundering.

It is notable that one risk indicator listed was the presence of a trust in a transaction. 

But, in truth, there are significant and legitimate reasons for holding artworks in a trust – while working with trustees adept at handling artworks and their associated risks, and in coordinating experts spanning valuers, insurers, transport/storage agents and legal and security teams, provides distinct benefits.

Firstly, trustees can ensure that each piece is considered on an individual risk basis, factoring in its provenance; authenticity and attribution; together with its political, ethical, and cultural significance; and any geographical issues, such as high-risk countries and jurisdictional regulations surrounding transportation and storage. Trustees can also advise upon the transfer/sale of a collection on behalf of beneficiaries inexperienced in dealing with art (which, depending on circumstances, an assessment of the collection for a potential sale should be considered and planned for carefully, as certain pieces could be grouped to maximise potential sale value across the entire collection).

Secondly, trustees can manage a collector’s long-term legacy-building strategy. This can mean preserving, or indeed growing, a collection across the generations; providing security for the collection in its entirety in the event of familial breakdown or dispute; and establishing a philanthropic plan. This can include promoting the collection’s “brand” and coordinating and funding partnerships, exhibitions, and tours at museums otherwise unable to afford them; funding the restoration of heritage sites; and administering significant art-related publications.

Indeed, the Macklowe and Allen sales are prime examples in which trusts or foundations could provide advantages for the collections – from protecting assets during separation and from loss of value in quickfire sales, to coordinating the effective realisation and charitable donation of a collection’s proceeds.

Thirdly, trustees might leverage the collection as part of a broader portfolio strategy and unlock liquid capital through loans, sales or art-backed lending. 

Finally, the use of trust structures can be vital for collectors requiring privacy and security – not least those whose assets may be at risk of, say, seizure by a ‘bad’ state actor or who face threats of theft, bribery or kidnap if their personal ties to a collection were known. Equally, UHNW individuals might face price inflation when purchasing if their identity were known. Trustees can mitigate this via a special purpose vehicle (SPV), to handle the initial stages of purchasing/selling before necessary disclosures.

With almost 60 per cent of UHNW individuals planning to invest in art in 2023, according to Knight Frank’s Wealth Report, and art the top performer in its Luxury Investments Index last year, the private market is thriving. Trusts and trustees play a valuable role in supporting this burgeoning market. 

Lisa Vizia