USA Law and Practice Contributed by: Jana Slavina Farmer, Adam Buchwalter and Dara Elpren, Wilson Elser Moskowitz Edelman & Dicker LLP
title or description of the artwork, date of creation, medium, dimensions, and other relevant information, such as edition numbers. It may be helpful to attach photographs or use digital tools to keep these inven - tories. Provenance documentation may include cer - tificates of authenticity, the artist’s catalogue raisonné , bills of sale, import/export papers, copies of relevant publications on museum exhibits, and so forth. Gaps in provenance may ultimately destroy the market value of an artwork and are more easily addressed during the collector’s lifetime. Appraisals for insurance or tax purposes are critical for managing an art collection’s value. The US Internal Revenue Service (IRS) has specific requirements for qualified appraisals. Nota - bly, the IRS’s Art Panel may scrutinise appraisals of high-value art reported on tax returns and adjust the values, which may result in tax penalties. Good docu - mentation and the use of qualified appraisals meeting the IRS’s requirements strengthen the heirs’ position. 10.2 Legal and Fiscal Issues in Artwork Succession Intestate Succession of Artwork Intestacy is how an estate is passed to one’s heirs under state law in the absence of a will directing the distribution. For artists and collectors, this means that the artwork and copyrights may be split among multiple heirs. This would, at best, cause a collection to be fragmented and distributed without regard to sentimental, historic, or societal values being taken into account, and, at worst, could force a collection to be sold with the proceeds distributed to the intestate heirs. Testamentary Succession of Artwork With a valid will (testamentary succession), the art owner can proactively direct what happens to their artwork and related rights. Specific bequests allow the designation of particular pieces to particular people or institutions, avoiding the ambiguity of intestacy laws. For instance, an artist or collector can ensure a certain painting goes to a named heir or that a collection is donated to a museum. Despite having a will, chal - lenges may arise, including as a result of ambiguous language as to how the assets are to be divided, or due to the possible misconduct of the executors. In the well-known case involving the Rothko estate, the executors were sued for selling art below market value
to insiders. The best practice is to distribute artwork in kind with an agreement among the beneficiaries or to sell artwork in a commercially reasonable manner to avoid breaches of fiduciary duty and litigation brought by upset beneficiaries. When multiple heirs inherit an undivided interest in an artwork, this often leads to conflict. To avoid this, it is advisable to clearly identify who inherits which artwork, and document ownership of artwork and collectibles. If the owner wants to avoid distribut - ing fractional interests in art to ensure a collection is maintained in its entirety, the collection may be placed into a limited liability company (LLC). The operating agreement of the LLC can provide a mechanism for the management of the collection and spell out the rights of its members, the beneficiaries of the owner’s estate. In sum, the succession of artwork requires careful advance planning and documentation to navigate the legal and financial hurdles and to ensure a smooth transition for heirs. Advance Planning and Documentation Lifetime gift considerations If an heir is gifted an artwork by their parents, for example, but it remains in the parents’ home, the IRS may not recognise the gift and include it as part of the parents’ estate. For tax purposes, a gift generally requires that the donor relinquishes control over the property and that the recipient accepts it. To avoid complications, it is important for the donor and recipi - ent to properly document the gift, including transfer - ring possession and filing a gift tax return to report the gift and value thereof. Copyright When a US author dies owning the copyright to their works (which is typical unless they assigned it during life), that copyright becomes part of their estate and can be transferred via will or intestacy. Copyright can be very valuable, as it gives the holder the exclusive right to reproduce, publish, or license the work for the remainder of the term (70 years after the death of the author). Managing copyright after the life of the author may become a significant task, and it is especially unwieldy if several heirs become co-owners of copy -
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