If not viewed as an investment of some sort, chances are that anyone collecting works of art is doing so because of the genuine love and passion she or he feels about the craft. Individuals assembling art pieces are often blinded by this passion, however, and it's not uncommon for some of them to forget that art collecting should also be about taking care of the documents and appraisals behind the artworks.
Why is managing such documents so important in the first place? Well, although nobody likes to think about such things, chances are that your art collection will outlast you.
When that happens, you will certainly not be in a position to make decisions about what shall happen to the art you possessed, so staying ahead of the curve might prove to be a vital moment for your collection's future.
When you finally manage to come to terms with the fact your art is probably going to be here after you are gone, the first step should be gathering all the appropriate provenance documents like appraisals and bills of sale. These will be critical proofs of authenticity and you will want them in place before you even start considering what is to become of your collection in the future. You should also consider properly cataloging, photographing and insuring your collection as all of that is a big part of arranging an estate plan.
After making sure all of the above is taken cared of, as well as that your heirs and family members are aware that plans are being put into motion, you are ready to start deciding what the future holds for your art collection. And now comes the tricky part - at the end of the day, you have only three real options when deciding the fate of your art. These are selling your collection, leaving the artworks to the heir(s) of your choosing or donating them to an institution of some kind.
Keep in mind that mixing and matching is a viable option here, meaning that some of your artworks can be sold and donated while some are passed down to one or more heirs. But be careful when doing so as art is notoriously capable of tearing financial pyramids down with swiftness and relative ease.
If you decide that selling the artworks is the way to go, you should keep in mind that placing artworks on the market is a more expensive feat than the case is with other assets - the capital gains tax on art and collectibles is 28% opposed to the 20% usually reserved for sales of other kinds.
You (or the ones dealing with the money you left behind) will also be responsible for settling the fees for sales commissions and various taxes, maybe even for transportation. With all of these expenses hanging over your head, you really want to make sure your heirs are aware of your art collection's real price, just so that the works are not sold at a lower rate than what their real value is and eventually flipped. Know that you can have a say in the next person or organization that will purchase your collection, so keep that in mind as well.
Ironically, selling the collection is likely the most expensive process of the three options an estate planner has to choose from. This is why having an estate planning attorney is a great idea as he or she could help you weigh the situation and determining the best course of action.
If you wish, you can leave the entire collection or specific parts of it to certain people. These heirs do not need to be blood-related, so you can really pick anybody you like. Regardless of whether the heirs are from your family or not, the technical term for the one inheriting works of art is a "non-charitable beneficiary."
The most important thing about leaving your artwork to specific heirs is making sure they receive the resources to properly maintain it. That is the main reason why we highlighted the importance of having quality documentation accompanying your artworks that will prove to be crucial in any potential sales, restorations or maintenance jobs.
Leaving your artwork to an LLC (a Limited Liability Company) is also an option. This alternative approach will put the entire collection into the LLC which can be left to multiple people. A great way for avoiding choosing specific pieces for specific family members, such an option will significantly simplify the process of splitting up the artworks to different heirs. In other words, if you leave your family members with artworks by a way of forming an LLC, you will ensure that they are the ones that own the interests rather than the art itself.
You've probably heard about how leaving your art to a museum or charitable organization will result in some great tax deductions. What you probably did not hear earlier is that if you choose to donate your art before you pass, you are entitled to an income tax deduction of up to 30% of your adjusted gross income.
With that being said, donating your collection to a museum upon your death is likely the simplest (as well as the safest) option you have when putting an art estate plan together. Your collection will be delivered to the location of your choosing and your estate receives a tax deduction based on the current valuation of what the institution received.
Whether you choose to donate art before or after your death, it's always up to you to specify any requests you might have. Some collectors, for example, request that their art is placed in a specific wing of a museum or that their name should be included next to the description of the displayed work. All bets are off and feel free to negotiate for whatever request you may have - since you are donating your work, chances are that there is always an institution that is willing to meet your demands if a certain museum or an organization is not looking fondly on your requests.
Featured image: A Woman Facing Assorted Paintings. All images via Wikimedia Commons.