As part of a series of expert views about "trophy assets", the law firm Taylor Wessing examines the disputes that can arise in the transfer and holding of fine art and other collectibles.
The article is by Andrew Hine, head of the private client group at Taylor Wessing. We invite readers to respond and they can contact the editor here at email@example.com
It is a privilege afforded to private client lawyers to observe the problems faced by individuals, families and trustees in respect of their assets and seek to find solutions. The longer the observation, the greater the experience which can be brought to bear and after over twenty-five years in practice, I can confirm that art, and chattels generally, throw up a diverse range of issues. There are the obvious issues of tax, valuation, provenance, insurance and title but also the peculiarly sensitive issue of devolution which is often overlooked.
Art and chattels can have great value, which alone is sufficient to arouse contentious thoughts in aspiring heirs, but, in relation to items which family members have known all their lives, sentiment has a large part to play and can lead to emotional and stressful disputes between families. At their most basic, such disputes can result from a contested selection of items, not always of significant value, which have been left to the deceased's children in equal shares: a valuable painting cannot be physically divided between more than one beneficiary although I do know of a multi-million pound picture which moves between the drawing rooms of the three children who own it equally.
I will not easily forget a somewhat fraught, fractious and long day which was spent supervising the division among her daughters of a very extensive collection of jewellery of a peer's widow. The ownership of art imposes responsibilities beyond that of proper curatorial custodianship, namely the need to provide a proper and certain method or mechanism of devolution which may require decisions to be taken on division by independent executors with the necessary authority given to them.
Often disputes arise out of ambiguous drafting, whether of a trust or a will, or a genuine uncertainty as to ownership. I can think of at least two chattel disputes, principally in relation to works of art, involving noble families. Each was acrimonious, long running and did little to enable the families to move on, such was the personal connection which family members felt to the items in question and, as is often the case in these disputes, the long standing unresolved personal issues, irrelevant to the legal points in dispute, between such family members.
Sometimes devolution will not mean division between heirs and, if primogeniture is not in point, it may be a question of finding a long-term permanent home for a collection; the acquisition of trophy assets then becomes a question of a lasting legacy, whether as a memorial or otherwise. A collection might pass to a bespoke charity for this purpose or to form a discrete part of the collections of a national body. This requires careful thought and advance planning and will, necessarily but subject to some tax reliefs considered below, deprive one's heirs of the value of the items which may cause disappointment if the value of the collection was a significant percentage of the overall wealth of the individual.
Markets, and values, change and unknowingly the value of the collection might have increased, or decreased, considerably as a result of a market recalibrating auction sale of works by the same artist. A reattribution of a long-held work of art can suddenly improve the family balance sheet: a rediscovered Rubens, previously hanging on a back landing of a client's house, soon found its way to the auction house. "Nice brown furniture" does not command the prices it once did whereas a fine monumental silver wine cooler with bling qualities, which I was discreetly, but unsuccessfully, trying to sell as a trustee over a long period was, eventually, very much to the taste of a Russian oligarch.
In the UK, inheritance tax (IHT) might assist in decisions in relation to devolution. Works of art, and other items, which are of "pre-eminent quality" may qualify for conditional exemption which defers the liability to IHT until a subsequent sale provided appropriate open public access is granted. Since 1998, when the rules changed, such access cannot be by prior appointment. In families where the home is not open to the public, this means, in practice, a loan to a museum.
Another option is to offer an item in lieu of IHT, effectively being a sale to the nation and, under a formula set down in legislation, this means that 70 per cent of the agreed value of the chattel can be set against any IHT arising in respect of the rest of the taxpayer's estate. It may be that, in relation to a stellar item which has a disproportionate value in respect of the rest of the estate, 70 per cent of the value exceeds the total tax liability in respect of that estate. HMRC does not give change in these circumstances but sometimes the recipient body or museum may be prepared to fund the balance under a hybrid arrangement and in recent years I have been involved in hybrid arrangements with the Royal Academy of Music, in respect of one of the world's most important Stradivarius violins, and with the National Trust in relation to works of art which were already on loan in one of their houses.
Works of art are the ultimate trophy asset and they always were; just observe the state rooms of any stately home and the pictures on the walls which were acquired to impress in exactly the same way as the buildings were built in which to house them.
Grand tours, as a means of assembling a collection, have now been replaced by highly professional advice on acquisition which is characterised by connoisseurship, scholarship and commercial flair. Advice may also be needed in relation to the structure of ownership, tax, copyright, on security for the raising of finance and, as in relation to any asset let alone assets of passion which are likely to arouse passionate feelings in others, essential advice is needed in relation to succession and devolution – you owe it to your heirs.