An art collection often starts as a passion. As such, it is not often looked at as an asset class that needs thoughtful organization, structuring and, most important, succession planning.
What are the different alternatives to transfer the ownership of art assets? What will your intended beneficiaries need to manage and steward your artwork?
An art collection can mean a lot for a family. In this episode of Life & Legacy, Agnes Le Ster and Felicia Law, from the Wealth Advisory Practice at J.P. Morgan Private Bank, discuss how families can approach estate planning of art pieces and ensure that the financial and emotional value of every particular piece is adequately taken care of.
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Felicia: Hello everyone, Welcome to this new episode of the Life & Legacy Podcast Series. My name is Felicia Law, and I run the North Asia wealth advisory team for the Private Bank. Today, I am joined by my colleague Agnes Le Ster, who is a senior wealth advisor based in Paris. Together we are going to discuss a topic that both Agnes and I are very passionate about - planning for art collections. Hi Agnes!
Agnes: Hi, Felicia.
The topic of how to plan for art collections owned by a family is not an easy question, as Art fascinates and Art intimidates
Felicia: Indeed Agnes! Like beauty, “art is also very much in the eyes of the beholder”. Appreciating a piece of art is an very subjective experience. Even close family members may have a very different view or feelings towards a piece of artwork.
In this episode, we would like to particularly focus on how to prepare for the long term future of an art collection. An art collection often starts as a passion, and therefore, it is not often looked at an asset class which needs thoughtful organization, structuring and, most importantly, succession planning.
Agnes: Indeed Felicia. An art collection can mean a lot for a family. First, it can be of great financial value because of the market price of the different piece. But also it can hold great emotional value as family members become attached to particular pieces, or because they know how much the collection meant to, let’s say, one of their parents.
In my experience, artistic assets are not frequently enough included in families’ overall wealth management or succession planning strategies. And that’s usually a trigger for many family disagreements.
So Felicia, shall we discuss the most important topics that every art collector should think about when it comes to planning for the future of an art collection?
Felicia: Certainly. Lets get started. The first step is to define your vision. What future do you envision for the Paintings, sculptures, antique furniture, special books, fabulous historical jewels, old cars, or other treasures that you have collected over the years?
Answering a range of questions can help define your vision and goals. We like to start with - Who – either individual or institution- would you like to pass the collection to? Should it remain in one piece of be divided among your heirs? Or maybe it was a personal hobby and you want it to be sold after you and the proceeds shared with your heirs?
Some owners believe that art should be enjoyed by those who share the same passion. I had a client who decided to establish a museum to display the family’s art collection. The museum is open to the public free of charge.
Agnes: Starting with the WHO, that’s a great point. The next natural step is drawing up an inventory of what you own and where is it located. While this may sound like a simple task, in my experience, it often requires a long and complex investigation before it can be answered precisely.
A collection is usually the result of a passion developed over several years or even an entire lifetime! One my clients was a collector, who had bought pieces throughout the years. Some assets were under her personal name, some were shared with her spouse, others were bought through her family holding company, some through her spouse’s operational business entities, and the last few pieces were bought through a dedicated art company that she finally established. Each of these entities were subject to different jurisdictions, meaning different laws and tax regimes.
Last but not least, some of the pieces were hanging at a wall at home or in the company’s offices, some were stored in vaults, some had been transferred temporarily to a museum… Taking stock of all the pieces was not a small task. Once you know what you own and where each piece is, you can keep your files updated with all related legal documents, as well as dealer insurance estimates.
Felicia: This brings us to the next point: the financial aspects.
Maintaining a collection needs funding. And when thinking of passing the collection it will need to be accompanied by sufficient resources to meet these costs. This can include funds to cover taxes that the gift or sale may incur into, paying for insurance, for transportation, storage, repairs…
There are different solutions to address this, for example leveraging a life insurance to provide liquidity upon death, or to put in place what it’s known as “art financing”.
If these expenses are not planned for then those who will receive your collection may face a cash burden. And even though the art market is very active, it can take significant time to sell a piece. There is a publicly known case surrounding a XVIII century table known as the Tescent table. This artwork is also known as “the peace table” because it related to an important political moment between Prussia and Austria. The initial owner wanted to sell it and then split the financial proceeds between his children. The first sale negotiated with a foreign buyer got called off because the French state did not authorize the piece to leave France. After several years, the table was finally acquired by the great museum in Paris - Le Louvre
Agnes: Another key element is actually communication among all parties involved.
For example, if you intend to pass your art collection on to your children, it is best if you can share the inventory with them early on and discuss the future split between the children, so that they can choose under your guidance. For many children, it is not only a question of creating an equivalence in financial value, but also choosing pieces that may have a special emotional value. Dividing the collection between several children is always easier if done while the art collector is still alive and can discuss and supervise the division. If a collector cannot have an open conversation with the heirs – for example because children are too young, the minimum is to have a clear will in expressing your wishes.
On the other hand, if your idea is to pass the collection to an institution like a museum or a private foundation, it is advisable to start the discussions early. Setting up your own foundation or museum and establishing its governance structure is best accomplished when you are present. And it may be the right moment to explain to your children that you love them, and that you do not pass the art to them because you want to preserve unity of the collection. They can potentially be invited to join the board and to act as stewards of the collection for public benefit.
I remember of the great disappointment of a client who wanted to gift certain pieces of his collection to a French museum but the museum ended up turning down the offer: the piece did not fit into their artistic strategy and its maintenance cost would have been too high for the institution
Felicia: As we approach the last minutes of this conversation, I would like to finish with the importance of training. Who will take care of the collection and are they trained to do this? Depending on the nature of the pieces of your collection, will your heirs or successors need professionally trained people to help them manage the collection?
In the example that I shared with you at the start of our conversation, our client hired a very experienced curator to help put together a team to run the museum for the family. His daughter, studied art history in London and she is also a painter. She started learning the skills from the professionals running the museum shortly after she graduated. She is the only family member in the second generation who is passionate about art. She enjoyed hearing all the stories and spending time with her father in the museum. Upon her father’s passing, she took the initiative to share those stories with the future generations at family gatherings. At the same time, she started looking for successors who are equally interested in art in the younger generations. It’s not just about the value of the artwork. For this family, the art collection is part of the family’s legacy and an important piece of the patriarch’s life.
Agnes: That’s a beautiful story to finish our podcast! We hope you enjoyed this brief overview of the different challenges of owning, maintaining and passing on an art collection.
Felicia: And that is it for our session today. Your Wealth advisors at JPMorgan, all around the world, are here to help you and your advisors make sure you achieve your goals for you, your family and your passion assets. Thank you for joining us!
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