USA – NEW YORK Trends and Developments Contributed by: Caryn Young and Allison Sweeney, Withers
of the works, and preserve flexibility as circumstances change beyond their lifetime. However the collector chooses to allocate their treas - ured works among their family members, it must be remembered that an art collection is a highly illiquid asset, and the collector should take steps during their lifetime to ensure there are liquid assets with which to pay taxes and costs of administration after their death. Life insurance may prove helpful to an estate com - prised largely of valuable illiquid assets like artwork. Or the collector might consider how charitable giving can be an important avenue forward, not only in the mitigation of death tax issues, but in the maintenance an art collection beyond the life of its collector. Charitable giving It may be that it is of the utmost importance to the collector not to bequeath the artwork directly to their children, but to preserve their family’s legacy by keep - ing the art collection intact. In fact, the best way to ensure a collection stays together very well may be to donate it to a museum or other charitable organi - sation with the capacity to care for such a collection. But to make this dream a reality, the collector is well- advised to begin these conversations with the intend - ed charitable institution(s) during their lifetime and not to simply surprise an institution with the bequest of an entire collection at their death. Indeed, a collector who is charitably inclined can work to build relationships during their lifetime with the institutions that will man - age their legacy after they have died, and come to an agreement as to the care, maintenance, and display of the collection in the future. The collector intending to make use of a charitable deduction (from income tax or estate tax) based on their donation of a work to a charitable organisation must take care to understand the asset and structure their ownership of the work of art accordingly. For example, because an artwork can be separated from its copyright, it is not necessarily the case that the owner of an artwork owns the copyright thereto. And a charitable deduction is available only if the entire asset has been donated to a charitable organisation. Therefore, a collector who donates the physical work of art to charity but retains the copyright to the work and its associated revenue stream, will not be eligible
for a charitable deduction, as they have not donated the entire asset to the charitable organisation. What’s more, a charitable deduction will be allowed only if it the intent to donate to charity was ascertainable at the time of the collector’s death. That is, if it is not clear from the collector’s testamentary instrument(s) that a work is destined for charity at the time of their death, the charitable deduction will be disallowed. Despite the need to look ahead, the collector must also proceed with caution, for though they may have supported a specific museum for a lifetime, it is not always easy to predict the changes in an institution’s governance or policy that time may bring, and a prom - ised gift to a charitable institution can be difficult to unwind if the collector’s feelings towards an institu - tion have changed. A private foundation may strike a perfect balance for the collector seeking a charity to assume the maintenance of an art collection but who is yet unsure which institution may be best suited to the role. Conclusion It can be difficult for an art collector, whether sea - soned in the art world or just entering its waters, to imagine their art collection without them at the helm. To ensure that a collector’s vision for the collection is met both at present and in the future, the collector must stay organised and review frequently with their advisors; • their financial picture; • their asset structure; • changes specific to the art collection (and its cor - responding inventory); and • their long and short-term goals for their collection, their family and their legacy. Of course, is it essential that the collector keep their advisors informed of any major life developments or changes, such as the marriage of a child, birth of a grandchild, change in residence or retirement. None of these issues can be considered in a vacuum, but rather each must be evaluated in context with the oth - ers, analysed, and given weight accordingly to help a collector achieve their dreams for their collection in life and beyond.
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