What issues must be faced by those wealthy families looking to pass on an art collection? An expert explores the territory.

A regular commentator about the world of art and investment among wealthy individuals, Randall Willette, managing director of Fine Art Wealth Management, examines issues around the transfer of family-owned art collections to the next generation. The editors are as ever grateful for these expert insights, which have relevance globally, and invite readers to respond. Email the editor at tom.burroughes@wealthbriefing.com

How families pass on their important artworks to the next generation will impact whether the family collection will last for a single generation or well beyond. One generation's success at building a family art collection does not ensure the next generation's ability to manage it responsibly or provide effective stewardship for the future.

According to a new white paper released by Fine Art Wealth Management, young adults born to ultra-high net worth (UNHW) families between 1980 and 1995 will need to play an ever-increasing role in managing the family's art collection while their attitudes and opinions toward art will be quite distinct from the generations that came before them.

- Acquiring the broad knowledge to ensure the family collection endures will be a significant undertaking for millennials. For the most part, education regarding a family's cultural heritage and collection history is largely informal and guided by family members. As such, advanced preparation and effective knowledge transfer by parents and grandparents will be critical to leaving a lasting legacy.

- As millennials begin to actively make decisions and choices that will shape the future of the collection they will have to continually assess how best to care for and preserve the results. Careful planning will yield significant benefits in the future including financial security for the family; an opportunity to minimise potential tax liability; and the chance to preserve and protect the collection for future generations.

- Just as family governance is important to ensuring adherence to the family's value system and successful wealth transfer of financial assets, the same will be true for the family's art holdings. The formation of a family art council bolstered by a well thought-out mission statement, collection management policy, and family charter will constitute the best forum for millennials to achieve and maintain an optimal balance of collection care and family values.

- One key to making sure the collection doesn't damage family harmony will be to work toward open communication.  Families should look for creative ways to involve millennials early on in the decision-making process by including them on boards and committees of family art trusts and/or foundations. Often, the family's overall financial needs may help to determine the specific vehicle chosen to transfer all or part of the collection from one generation to another.

- Millennials will be driven by their values and will view their wealth as a means to advance the artists they support. Drawn to artworks they believe in, millennials will aim to make the family collection an extension of their personal brand. Management of the family brand for the collection will require practicality, strategy, and strong commercial acumen while the artworks will need nurturing and care. 

- A well-constructed wealth transfer plan for the family collection must consider tax-efficiency as part of the overall plan. There are a number of planning options for families to consider to achieve the desired outcome including transferring all or part of the collection to children; selling or exchanging part of the collection; or transferring part of the collection to charity. The family will also have to determine when the disposition will take place, either during the collector's lifetime or after their death.

- The majority of UHNW millennials will be actively engaged in art philanthropy due to their family's existing involvement.  It is a fine gesture for families to share their passion for art by enriching a museum's collection or to give them on loan to an exhibition. However, donating artworks to a museum may involve more than one thinks. Making a donation, particularly when it comes to larger collections, will take considerable forethought and planning by millennials. Ultimately, the family must strike an agreement that spells out the terms by which it will offer, and a museum will accept, the gift. 

- As millennials assume leadership, new approaches to the family collection and art investment will be demanded to more effectively respond to shifts in the art market landscape. For this reason, the role of wealth managers and art market professionals will be crucial in avoiding any surprises. Those advisors who have a personal relationship with the individual millennial and understand their specific goals beyond their families' broader objectives will have an advantage.

If families are able to pass on their cultural heritage as well as their wealth effectively, it will increase the likelihood that future generations will be better prepared to preserve the family collection and guide its direction in the future. We hope this report will provide valuable insights into the very real challenges and significant opportunities of transferring a family art collection across generations. 

To receive the full report, The Transfer of Art Wealth: Planning for the Transfer of Family-owned Art Collections to Millennials, contact info@fineartwealthmgt.com.