UK Law and Practice Contributed by: Margherita Barbagallo, Sanskriti Mohta and Nilojana Nirmalan, Dragon Argent
artwork for the benefit of the beneficiaries as set out in the trust deed. This structure offers several advantag - es. It allows the settlor to maintain control by setting out exactly how the collection should be managed, who can benefit from it, and when it can be sold. A trust is also ideal for keeping a collection together as a single, cohesive entity for multiple generations, pre - venting it from being split up upon inheritance. From a tax perspective, trusts can be structured to mitigate IHT, although the rules are complex. The question of establishing a trust purely “to preserve an art collection as a whole” touches on a complex area of trust law. English law has a strong tradition of only recognising trusts for human beneficiaries, not for “purposes” (such as preserving a collection), with the main exception being charitable trusts. A trust estab - lished purely to preserve a collection for its own sake, without human beneficiaries, would likely be a non- charitable purpose trust, which is generally void under English law. If such a trust were attempted, it would likely fail, meaning that the legal ownership would not effectively transfer to the trustees as intended.
However, the trust can be valid if it is structured as a charity (sometimes referred to as an art founda - tion) with a recognised charitable purpose (such as advancing the arts and culture for public benefit). In this case, the fiscal treatment is favourable, as trans - fers into a charitable trust are generally exempt from IHT and the charity itself is exempt from CGT and income tax on applicable transactions. However, establishing and maintaining a charity involves rigor - ous ongoing compliance with Charity Commission requirements, including demonstrating public benefit and ensuring that any private benefit is incidental. In practice, many families use a standard discretionary or interest-in-possession trust for their beneficiaries, with the goal of preserving the collection as a central objective stated in the trust deed or a letter of wishes. This achieves the practical outcome of keeping the collection intact while remaining within traditional trust law.
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