Purchasing artwork is a very personal decision. Managing your artwork, knowing what you own, where you bought it, and how much you paid, requires putting pen to paper and following these basic steps.
What do you own?
An inventory (other than the one you keep in your head) is essential not only for property insurance coverage, but also to minimize estate and income taxes. Inventory can be card-based or digitally recorded as long as each description is sufficiently detailed, including:
- Who are the creator, artists or authors (including co-authors, collaborations and contact details);
- Dates of creation and acquisition;
- Contracts associated with works, such as licenses, assignments, etc. ;
- Where art is kept;
- The names of the galleries or resellers as well as their contact details; and, all documents referring to the work of art, such as catalogs, sales invoices, etc.
Include in the inventory any reference to contractual relationships that may exist, including:
- consignment agreements,
- Loans or distributions; and
- Reproduction rights.
You most likely have a large number of non-art objects, such as coins, gems, jewelry, furniture, or other decorative collectibles, and associated masses of documents , catalogs, notes, letters, invoices and documents. You may know what’s valuable and what’s not, but your heirs don’t. Without this knowledge, it is easier for someone in the know to take advantage of your heirs and offer a fraction of the true value of the items. By aggregating the artwork and other elements together, you can simplify things considerably. Here are some ways to aggregate your collection:
Acknowledgement. Group together what has the most stable price (like old master paintings) and what has the most volatile price (like your beanie baby collection).
Legal title. Legal title (also known as provenance) of artwork and collectibles is essential for your heirs to understand either to keep the artwork or to obtain fair market value for the artwork when it is sold.
Liquidity. The ease with which your heirs can sell an item is also an aggregation factor. Rare or unique items (paintings made by an elephant, for example) on their own can be valuable but not as liquid.
Prime. Premium items are just that. Mark them as such, so that they receive specialized treatment in management, conservation, transfer or sale.
You know the art market, but do your family or advisers know it? Ask the following questions:
- What is your buy-sell discipline for art? Your heirs need the same kind of discipline in managing ownership of works of art and other investments in tangible assets, namely, when to hold assets until the value recovers; when to sell assets to cut their losses; and, when to sell some or all of a type of artwork before the market declines.
- Does your personal representative easily know how to maintain and ultimately dispose of any artwork from your estate? In some circumstances, a cultural executor such as a private curator or expert in the field may be better equipped than family members to manage the disposition of artworks.
- Do you have insurance policies that cover the risk of loss of Art? Several types of insurance can help with this. Life insurance provides liquidity, P&C insurance covers losses; Title insurance on items of any significant value manages transaction risk and eliminates liability for suspicious or looted artwork.
Whether you are a new collector, an art buyer for decoration, or someone who has inherited art, having an inventory, categorizing and managing your art will help minimize taxes and prevent your beneficiaries from being abused.