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EXPERT VIEW: Family Art Foundations - Protecting The Family Collection For The Next Generation - Part 1

Randall Willette and Etienne Ceulemans

29 September 2015

Randall Willette, who is founder and managing director of Fine Art Wealth Management, and a member of the editorial advisory board for this publication, has already shared ideas on art, investment and collections with readers through the years. In this article, he teams up with Etienne Ceulemans, partner of Creattrust Sarl, of Luxembourg, to examine the role of family art foundations in protecting collections for the next generation. The article in part examines the foundation structure that is familiar in Luxembourg. This is the first half of the feature; the second half follows in due course. The editors are delighted to share these insights with readers; as always, they invite readers to respond with their views.


Today, the private art collections of wealthy families can rival those of major art institutions. Private foundations are being created at an astounding rate and for many wealthy families, art collecting has become synonymous with art investing. Equally important, art collectors are moving toward an increased focus on using their wealth to realise what they define as a richer life and to achieve a greater sense of fulfilment for themselves and for their community by leaving a lasting legacy with their collection.

Having created or inherited a collection, many families will wish to ensure it is preserved both during their lifetime and for future generations. Planning how to transfer a family collection to the next generation can be one of the most critical aspects of building and maintaining a successful financial plan. Deciding where the collection may reside be it with a foundation, a family member, or a museum is also a key consideration. In light of potential tax and other financial liabilities, deciding on the best strategy early on can be of critical importance.

In recent years, a growing number of collecting families are choosing to create their own private foundation rather than to donate works art to existing institutions. While there are a number of factors driving the growth of foundations globally, the desire to preserve and protect the family collection is a major consideration. Equally important, once a collection has passed a certain threshold, a wide range of financial planning considerations come into play.  

Ownership through a foundation structure can offer significant advantages over direct ownership in terms of preservation of the collection generally and, in particular, in relation to the owner. The very wide range of foundation formats available and the huge flexibility which careful drafting can incorporate into foundation instruments allows structures to be tailored to the needs of the particular client and collection. 

Why families set up private art foundations
The family art foundation is a vehicle which aims to help families organise their collection for the purpose of transmitting their art to the next generation. Its objective is to manage and administer art assets in favour of one or more beneficiaries, or in favour of one or more aims, which are different than those dedicated to non-profit foundations.

Creating the right financial 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 in order to chart a creative and sound financial course that serves the family effectively over time.  

Questions concerning whether children will have the organisational and financial resources to care for a collection and whether there will be sufficient wealth to bequeath an inheritance outside of the collection itself may have to be worked out.  Regardless of whether the children have an interest in the art, decisions about its disposal can often be quite emotional. 

Individuals and wealthy families may use the family art foundation for many reasons which may include the following:

Desire to leave a lasting legacy:

A private art collection is often built on emotion and passion. It is only natural that collecting families who devote great care to cultivating their collections should wish for it to leave a lasting legacy. Moreover, the value of this familial patrimony will increase over time and it is important that the collection remains intact and continues to evolve over time. Families may wish to maintain control over the collection and to ensure the art is properly cared for. The foundation can also be used as an instrument to prevent the dispersal of the art after death.

Preserve the original vision of the founder:

Ultimately, collectors considering the creation of a foundation feel a responsibility towards their art and want it cared for and preserved. By creating a family art foundation, the founder ensures that his or her vision continues long after they are gone. Another consideration is the shape that their foundation will take - do they intend to build a permanent memorial or an evolving institution? Ideally, this should be decided early in the collecting process as it helps define the collection's scope. Any collection could potentially survive as either, but collectors should assess the unique benefits and setbacks of each model. A permanent memorial will serve the purpose of immortalising the founder while allowing the public to experience art as the collector intended.

Succession planning and a family’s cultural heritage:

Collecting families need to make provisions for the preservation of their collection and transmission to succeeding generations. Family collections can provide essential clues to a family’s past and can hold vital and unique information regarding the history of a family. Creating a family art foundation gives the possibility to choose how and by whom the collection will be managed in order to secure the family’s heritage. Moreover, the foundation allows the separation of economic ownership of family property and the management of the family business. This is particularly useful when the founder has no children or if he considers that some of the heirs may not be suitable to oversee the collection.

Taxation in Luxembourg

Wealth tax:

Unlike other vehicles for private wealth management, the family art foundation in Luxembourg has an opaque “company form” from a tax perspective and it is considered as fully liable to Luxembourg income tax (corporate income tax and municipal corporate tax). However, a private family foundation is tax exempt in other ways:

Capital gains on artworks – Capital gains realised on movable assets held by the foundation are tax exempt if the foundation has held the said asset for more than 6 months;

Income derived from renting the artworks – While the rent received by the foundation might be taxable, holding the artworks will not suffer any wealth tax. Receiving income from renting the art collection may be taxable but will often be offset against the costs of holding, maintaining, insuring, and protecting the collection. The foundation will be exempt from wealth tax.

Certificates issued by the foundation – the foundation can also issue certificates which are linked to one particular group of assets like an art collection or in tracking the income realised by the foundation on a particular piece of art.  Income including rental income or capital gains which are generated by the foundation then becomes directly due to the holder of such certificates. The income received by the foundation enters into its taxable base but the payment made to the holder of the certificate is then considered as interest which offsets the income derived by the foundation. 

Thus, no taxation will be applicable at the level of the foundation. This deemed interest income paid by the foundation on the certificate does not suffer any withholding tax at source, being a company, a fund or a HNWI. 

Moreover, other income streams like income derived from the wealth management of a portfolio of securities held by the foundation will also be tax exempt (dividends and interest received from securities as well as capital gains on such securities). This feature gives a tax advantage to the founder and the beneficiaries. Meanwhile, the artwork and the family’s financial assets can be grouped into the foundation and managed jointly in a tax efficient manner.

The “beneficiaries” of the foundation, if they are non-resident, will not be taxed in Luxembourg upon distribution paid by the foundation. Likewise, no inheritance tax will be applicable upon transfer of assets by the foundation to the beneficiaries (or to the founder if he is one of the beneficiaries), except if the assets are real estate situated in Luxembourg.

Foundations and philanthropy

It is a fine gesture for families with exceptional art wealth to share their passion by enriching a museum’s collection with works of art, or to give them on loan to an exhibition in order to share their enjoyment with others. However, the primary aim of a family art foundation is to manage and administer a family’s private art assets in favour of one or more beneficiaries, or in favour of one or more aims. Separately, there are non-profit foundations dedicated purely to philanthropic endeavours. While it is not prohibited for a private foundation to have incidental charitable and non-profit activities, they should not be incorporated with a goal in mind that is normally reserved for non-profit foundations.


The protection of privacy is an important part of a family art foundation. With many museum collections going online, it begs the question should private collectors not do likewise and in doing so how do they protect their property and privacy?  A foundation can meet the legitimate needs of wealthy families to limit the visibility of their art assets to ensure their safety. In Luxembourg, this privacy is reflected in the fact that while the creation of such a foundation must be advertised in certain publications, it is not required that the publication mentions the identity of the founder and the beneficiaries or even the amounts contributed. 

Equally, although the foundation must prepare annual accounts, these accounts do not need to be published. Furthermore, the appointment of an auditor is only required if the foundation has more than 5 beneficiaries or assets exceeding 20 million euros.

The benefits of art foundations over other art holding structures

They are quasi corporate in nature -

An art foundation in Luxembourg is defined as an instrument reserved for individuals or wealth structuring entities whose purpose is to administer and manage art assets. It cannot be used to exercise a commercial, industrial, agricultural or professional activity. 

Based on corporate law, this instrument resembles a commercial company with a separate legal personality. The main difference is that the foundation is an orphan structure which has no shareholders, partners, or members.  It is also easier to create a foundation and simply requires a constitution document to be filed and registered reflecting the following:

Registered office in Luxembourg: Minimum contribution of €50.000 ($56,000); only used by individuals or by wealth management entities who administer the assets of individuals; a notarised deed must be drawn up which contains the constitutional charter.

Family members, advisors and professional fiduciary can be appointed as councillors to manage all the affairs of the art foundation - 

A foundation implies a tripartite organisation, involving the founders, the beneficiaries and the management. The founder can be one or several private individuals (family members or not), advisors or professional fiduciary that administer assets of individuals similar to a trust. The founder has a large amount of freedom and can reserve the right to amend the articles of incorporation of the foundation, including its lifetime and liquidation, the designation of the beneficiaries, and also change the legal by-laws.

A foundation can have one or more beneficiaries whereby the founder is given the possibility to appoint as well as to revoke beneficial interests and to determine the criteria for the selection of beneficiaries. A patrimonial foundation is administered by a director, or by a board of directors, composed of natural or legal persons (including the founders and beneficiaries who may combine these functions) that undertake all action necessary for the accomplishment of the foundation’s purpose. In some cases, the foundation may have a supervisory board. It is only mandatory if there are more than 5 beneficiaries or if assets exceed 20 million euros. Resolutions by the foundation’s management and supervisory bodies will be approved by simple majority and a quorum is not required.

A foundation enjoys a separate legal personality and will own assets itself -

The separate legal personality allows foundations to own art collection directly.  Beneficiaries have no rights over the assets as the assets that are placed into the foundation become the property of the foundation itself both legally and beneficially, managed for the benefit of one or more beneficiaries. 

However, the law allows that foundations can issue certificates of entitlement providing beneficiaries with a clear title which represents an asset or a part of the estate of the foundation.

No shares are issued -

As no one individual owns the foundation, it is fully autonomous. Accordingly, the foundation does not have shares, unlike a corporate structure. As seen above, the foundation may issue registered certificates linked to assets it owns and representing rights defined in the incorporation act or other documents, to any individual or patrimonial entity acting in the scope of wealth management of one or more individuals. A certificate holder has the right to receive income derived from the underlying foundation’s assets.

Attractive to clients from civil law jurisdictions –

Foundations are clearly governed by the law in the jurisdiction where they are established. Foundations are based on civil law and clients from civil law jurisdictions have more familiarity with such law.

How an art foundation can provide for heirs and other beneficiaries:

An art foundation can help a family to decide on a strategy for the collection early on by -

The foundation can be created during the lifetime of the founder or on death.

The foundation can be created for a limited duration and can be revoked.

The founder can exercise control over the use of the assets and retain certain powers.

The foundation foresees the supervision by outside administrators.

The foundation is created for asset protection and succession planning.

Helps to maintain family harmony -

A private art foundation can be used as an instrument to prevent the dispersal of art assets in the event of death of a member of the family. As the decision on how the assets will be managed is taken before the death of the founder, and according to the founder’s will, the family won’t be able to intervene independently in the management of the collection. Risks of differences of opinion within a family will be minimal and family harmony maintained.

Includes family members in the decision making process -

Family members and heirs can take on several roles in the art foundation including: Founders, beneficiaries and / or members of the board of directors, according the founder’s decision. They can also be involved during the stage of reflection prior to the decision -which will finally be drafted in a constitutional charter- or during the implementation phase of the will by being a member of the board of directors.  Including family members in this process will help to obtain a better acceptance of key decisions.

Preserves the collection during their lifetime and for future generations -

Another purpose of a family art foundation is succession planning.  It will ensure the wealth of the deceased will not be dispersed.  The management of art assets by a board of directors will enable the family and heirs not to have to continually think about the most appropriate choices to preserve the collection as the strategy will have already been decided and the risks of errors thereby reduced.