Why Risk Losing Your (Art) Collection?

It's become pretty clear to me, working as the Director of the Briddge Group's Chicago office, that there are an awful lot of risks inherent in having a decent (or better) art collection.

I think it's important to look at these risks and to consider the value of working with some really competent collection advisors.

The number 1 biggest risk a collector can have is not having a solid record, historical catalog and inventory of what the heck is in the collection. This is important today and even more so in the future.

Most collectors buy, sell and move art around in their collection. We forget how long we've owned something, where it came from and what we paid for it. And invariably we have little idea about what it's worth now. If someone were to offer you what seemed like too much money for a piece you are willing to sell would you know if you were making a killing or getting screwed?

Let's say you die, and like most folks you have an inadequate plan for your art, and your kids are selling some pieces to pay estate taxes, don't you think the cost basis might be important for them to know?

Heck, I run into adult kids all the time who are selling the art they've inherited from their parents and they have no idea whatsoever if the piece is a painting, a lithograph or a reproduction. (Usually it's a reproduction that they want to believe is a valuable painting.) Don't you think it would be better if they knew what it was before they started spending the money?

You need a thorough, comprehensive, up to date record of what is in your collection. First and foremost! A qualified collection advisor/Art Succession Planner can take care of this for you. You will need to know if you have proper title (Do you know for certain that your art is not on any 'stolen art' list?), what the provenance is, when it was acquired, how much was paid, where it has been exhibited, what exhibition catalogs its in and approximately what it is worth today.

Let's touch on the stolen art problem. Stolen art is the third largest crime in the United States. Do you know how to ascertain that what you're about to purchase, or have purchased does not in fact belong to someone else? Do you know that if you have done your due diligence properly you can protect yourself from recourse? Do you really believe the person you will or have bought it from has done their due diligence? Can you imagine the difference between proper research - which is not expensive at all - and no research? If you have a collection that you believe is of value or even some pieces that may be of value, this is something you need to know and something The Briddge Group or someone like The Briddge Group can provide for you, cost effectively, efficiently and easily.

Let's go back to the scenario where you die without an effective plan for your art. And your collection of art, antiques, wine or Corvettes is worth in excess of half a million dollars. Do you realize that between auction fees, commissions and Uncle Sam your heirs are likely to relinquish in excess of 70% of the value of that collection? Do understand that with proper planning they can give up nothing?

Do not assume that your having discussed this with your estate planning attorney is sufficient? Did they ask you what you want to do with your collection that is going to outlive you? Did they talk with your heirs? Did they ask you if you want it to go to an institution? Did they talk to you about funding the donation above and beyond the actual gift and discuss strategies for accomplishing that? Did they negotiate with the institution? Invariably the answer is "No." With an informed Art Succession Planner you can create a team of advisors who will work with your existing lawyers and accountants and as an ensemble create a plan that takes care of what you love and who you love and will save you and them lots of money in the process.

Even if you are not going to die soon, it is not too early to make intelligent choices. From the numerous collectors I've spoken with about these issues it is clear that some think they know enough to not have to work with the specialists who do this every day.

One collector was shrewdly gifting pieces to his children every year, believing that he was effectively transferring ownership and correspondingly reducing the value of his estate, while leaving the art on his walls. The problem is the IRS does not consider that a transfer of title, since the art never left the premises, so all the foresight benefits no one. Kind of like home repair - at a certain point it is a whole lot wiser to contact an expert.

Then there's the collector with a very large collection and a really good record of it, but he's got his insurance with a company that is known to not understand art insurance. Damaged art is not like a damaged automobile. If the insurance company wants to use Bondo to fix your art, you're probably better off somewhere else - or contacting an expert.

Experts do not charge on a percentage basis. We are fee based. The amount of money you spend to get it right versus the huge risk of getting it wrong means doing it right is incredibly affordable.

Think about it. If you have a collection - art, antiques, cars, coins, stamps or butterflies - a collection you care about, your biggest risk is not contacting an expert. And if you mistakenly think your kids are going to sort it out later you should get in touch with an art succession planner now!

Thank you,
Paul Klein

Comments

[lawguy60606]

Informative.

Speaking as an estate planning attorney, I can say you're right on many accounts. Of course, having never worked with a valuable art collection, I would definitely have to research the question of how to properly transfer art to heirs using annual exclusion gifting. This could obviously be a huge problem at death...having a valuable, and illiquid art collection could cause the heirs fits.

Seems like an FLP would be ideal here...especially if some form of revenue could be wrought from the collection via showings, etc.

www.chicagolawblogger.com

[classicalgeek]

Your local university (if they have not closed down their art department completely) may be willing to help, especially if they believe they may receive a gift at the end of it. Succession planning is critical and your estate attorney should have a network of persons to refer you to. If not, help him or her understand the value of having such a network!

[Paul Klein - Huffpost Blogger]

Good points Joyce and Mr. Geek. My experience is that invariably estate planning attorneys overlook collections and if they do ask about it just group it with stuff called 'other'. Collections are a special asset - completely unlike real estate or stocks. Collections need special attention. A savvy collector can ask their attorneys and advisors about succession planning, but the attorneys need to be educated too.

[JoyceOwens]

Good post. Many people do not know the difference between a print, a poster, and a reproduction.

I would suggest that collectors make sure they find experts who are familiar with the kinds of art works in their collections. Sometimes art works are undervalued because the appraiser is not familiar with the particular area of art under consideration. That occurs in relation to African American art collections, for sure. Local museums dedicated to African American art might be helpful, or scholars who specialize in African American art. The same applies to Asian Latino and women's art. If the work is already listed on art auction websites , no problem, but if it is obscure, be careful!
I also would just ask the person to spell out their particular areas of knowledge.
No expert will know everything. But they should know what they do know. Second opinions serve people well when appraising their collections as when going in for surgery!