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From passion assets to planned giving does estate planning affect the growth and development of a collection?

The Art of Collecting

A variety of factors drive collectors to collect. Perhaps its investment, notoriety or by inheritance. Regardless of if they are collecting art, wine, jewelry, baseball cards or vintage autos, arguably the greatest force behind any serious collector is their passion.

At least, at first.

As collectors build their collections, they inevitably discover more about the items they are seeking, and their interests deepen and evolve. They may focus on specific genres, eras, or artists, creating a collection with a certain theme or meaning, or they may broaden their scope to incorporate greater variety to reflect their personality or lifestyle.

There is no “right way” to collect. However, there are a myriad of reasons why a collector should think about what will happen to their collection once they are gone.

An Investment in the Future

For many collectors, a high-value collection represents a joyful investment in the future. While appraisal values may rise and fall with the tide of fluid markets, those who collect passion assets are still able to appreciate and enjoy their investments throughout their lives while remaining confident that it will provide a valuable and worthy legacy to leave behind.

But the problem with passion is that it’s hard to pass on. The same is true with one’s passion assets.

Even in close-knit families where collecting is embraced generation after generation, it is easy to understand how heirs may not share the same tastes or interests for collected items. Inheriting a valuable collection is simply not the same as assembling it yourself, and minus the passion for the collection, its value defaults to its appraised market value.

This is why it is so essential for collectors to engage in estate planning as early as possible.

Leaving a Legacy

Although a collector, especially one that is young, may be loath to begin thinking about their inevitable passing, it is crucial that they consider the ultimate fate of their collection well in advance.

Not only does it help facilitate the bequest of the valuable items they’ve collected, but it may also help guide them in the growth and development of their collection.

For example, if a collector has multiple heirs, they may not wish to “break up” their collection by distributing its parts to different beneficiaries. And even if they do, they may find it impossible to do so equitably, due to the variance in value of some pieces. If the bulk of the value in a collection is held within one or two pieces, how can it be evenly (and amicably!) distributed between three heirs?

Having no estate plan in place is easily the worst scenario. In this situation, a collection is likely to fall under the control of an executor who may choose to liquidate the collection altogether to allow for an equitable distribution of assets. Selling a collection at auction in the interests of expediency could very well minimize the exit value of many objects. Further, sales of tangible assets will be subject to capital gains taxes at a rate of 28%, whereas items bequeathed directly to heirs will not trigger estate taxes (unless they turn around and sell them).

Planned Giving

Perhaps a collector knows a single piece, or their entire collection would be appreciated by a broader audience. Maybe they have a strong relationship with an institution with the same subject matter focus or that is committed to their same philanthropic values. Having invested much time and capital in obtaining their assets of passion, the consideration of donation and Planned Giving is an important one.

Any major gift can be an effective way of not only circumventing capital gains and estate taxes, but it may also entitle the estate to claim a charitable tax deduction. However, there are limitations to this process.

For example, a collection must be donated to a public charity that will use the items for non-commercial purposes, rather than to a private foundation. This can be problematic in that the terms of the donation may be more difficult to negotiate with a public entity than with a private foundation, especially if it is a foundation set up to administer the collection.

If the desire is to make one’s collection available for the public to enjoy, strict conditions must be placed on the collection to ensure that it remains intact and outlines what can and cannot be done with it in perpetuity.

The Advisory Advantage

In addition to consulting with a financial planner, collectors can avoid many of the pitfalls of passing on their passion assets with the aid of an art advisor who has expertise and experience navigating this kind of conversation. Collectors will inevitably need to have their tangible assets professionally appraised for both insurance and tax purposes. This is when consulting with a team like Art Peritus provides invaluable insight and can help direct collectors in the best way to grow, protect, and maintain their collection for both posterity and financial value.

An experienced consultant for example, may identify certain niche collecting markets that can encapsulate a collection, giving it form and shape for future acquisitions. This type of advisory relationship can help the collector continue to develop their collection in such a way that stays engaging, desirable and true to the passion that inspired them in the first place, whether it is ultimately sold or donated to charity.

An Art Consultant may even help forge connections with viable charities, and otherwise lay the groundwork for legacy giving that will protect the collection and its value once the collector is gone. It is estimated that art and passion asset collectibles comprise around 10% of the net worth of individuals worth $30M or more. Globally, that amounts to more than $3 trillion in privately held assets, nearly all of which have a value determined solely by market conditions.

Collecting passion assets may well begin as a fervent personal pursuit, but what happens to those assets in the end is something collectors truly need to consider, because it will likely affect the development of the collection itself.

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Why Provenance is Paramount

As the holiday season approaches with calendars full of significant auctions and art fairs, you’re probably finding your inbox filled with emails reflecting on the sales trends expected to shape the market in the coming year. And while the UBS 2023 Global Wealth Report, ARTnews, and The Art Newspaper (to name a few) provide exceptional insights into the year ahead, we at Art Peritus wanted to focus on something more evergreen: Provenance, an important element that can have a profound impact on an item’s value.

When it comes to acquiring fine art, antiques and collectibles, understanding the nuances of quality, age, historical values, craftsmanship, and condition is vital. However, a piece’s provenance – its history of ownership – plays a pivotal role in determining its value and today in determining how it is presented for sale.

How Provenance Can Push Sales Sky High

One always expects a painting by Pablo Picasso to sell well at auction, but sometimes a painting’s provenance helps push it into stratospheric heights. Case in point is the artist’s painting “Femme à la Montre,” 1932 that just sold at Sotheby’s for close to $140 million dollars.

Beyond Picasso’s renown, the painting’s value was elevated by its prestigious history. It changed ownership only three times, notably passing from the artist into the hands of Galerie Beyeler, then subsequently to Pace Gallery, and finally into the renowned collection of Emily Fischer Landau. The fact that it had not been available for sale in fifty-five years, coupled with its stellar provenance, contributed to its record-breaking success.

Group Consignor Sales vs. Single Owner Sales

Auction houses have traditionally promoted single owner and celebrity sales, leveraging the owner’s name and fame to boost both interest and competition. Notably, the past couple years have witnessed a record number of single owner sales, accounting for almost a third of total sales. This includes celebrity memorabilia sales from Freddie Mercury, Barbara Walters, and Elton John, as well as exceptional private art and antique collections such as the Macklowe Collection, the collection of Paul G. Allen, and the Ann and Gordon Getty Collection.

While the focus on single-owner collections is not a new one, the provenance reflected in these sales is what appears to keep this segment of the market afloat following the antiques and traditional art market’s considerable downturn since the economic crisis of 2008/9.

Certainly, quality works from important collections still command high prices, yet most middle-market works are performing at much lower levels.

In the past, multi-consignor sales of ‘important’ works, divided by category, were offered several times a year. Today, the leading houses have combined these works into ‘Collector’ sales which used to be reserved for secondary auction houses.

To a lesser effect, this even holds true for a single owner collection that is sold via several sales. Usually, selected highlights are offered in a live auction setting, while the bulk is offered in multiple online sales with high-lot counts.

The Value of Renown

Last year, Art Peritus had the honor of appraising over 1,200 works in the Getty collection for IRS charitable contribution purposes (we are grateful to the family office for allowing us to break confidentiality regarding our involvement for this article). The vast and eclectic Getty collection was divided as described above into three tranches, categorized by residence and sold over a period of twelve months.

One of the top lots of furniture in the last live sale from Wheatland (an exquisite George III Ebony and Chinese reverse painted breakfront bookcase circa 1760) sold for more than double the low estimate at $750,000. Yet, this same lot may not have fared as well against some of the other more historically important works offered in the first live evening sale (had it been offered for sale there). Furthermore, the middle and lower-market works offered online in the first tranche of sales performed much better on average than those in the second and third groupings. This is likely a result of the dissipation of the original hype from the ‘once in a lifetime’ sales event given they were the last of many of sales over 12 months.

Provenance in the Long-Term

Once these single-owner sales events are over, the buyer then needs to ask themselves, what is the current and long-term value of the works they purchased?

We once performed an insurance appraisal of a broken vase. The pattern was quite recognizable and regularly traded at about $200. However, this specific vase was acquired through the Estate of Jacqueline Kennedy Onassis, at Sotheby’s auction in 1996 for over $80,000. This sale was so popular that Sotheby’s had to create a lottery for tickets to the viewing for those looking to acquire almost anything from the legendary family.

When it came to appraising the piece, the insured had luckily scheduled the work at the purchase price and was therefore covered for that amount. However, the true value of that vase was only $80,000 on the night of the auction given all the bidders in the room.

Auctions require at least 2 buyers to bid-up each other to a final successful sale price. When there are more than 2 buyers, let alone the numbers that attended the Jackie O sale, the true value of the object becomes irrelevant.

If that same vase were to be offered today (undamaged) in a group consigner auction, even with the Jackie O provenance, it would undoubtedly sell for only a few bid increments more than an identical vase without the provenance. But it would in no way be able to bring $80,000 again given the significantly smaller pool of bidders that would even be aware of the sale occurring.

Provenance and Exhibition History

Another aspect of provenance to consider is an item’s history of exhibition. For example, an exceptional porcelain footed bowl by Austrian artist Lucie Rae recently sold at Phillips, UK, for a staggering £330,200 (approximately $401,292 USD) setting a record for the artist. Despite the artist’s growing market and popularity, the piece’s strong provenance and international exhibition history significantly contributed to its value. That being said, the impact of that sale result, will have minimal effect on other works by Rie that lack the same provenance and exhibition factors, making this result an outlier.

More than Just a Piece

Provenance is not just about who owned a piece; it’s about the story it carries. Whether it’s a Picasso painting that has only changed hands a few times or a bowl setting a record at auction, the history matters to buyers.

Provenance isn’t a footnote; it’s a key player shaping the value and significance of artworks. In a market that’s always changing, provenance acts as a reliable guide, helping buyers and sellers navigate through the complexities to find pieces that carry not just artistic merit but also a rich history.


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17/Feb/23
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Art Peritus recently sat down with Katja Zigerlig, Vice President, Art, Wine and Collectibles Advisory at Berkley One, a Berkley Company (WRB) to discuss the nuances of collecting and insuring Fine Art. Katja consults with collectors as well as insurance and financial advisors on the physical and financial protection of their passion investments. Brooke Mellen, a Former Risk Manager at Sotheby’s who now runs Cultured Forest chatted with Katja about New Year’s resolutions in relation to art collecting.

BLM: Have you made any personal art-related resolutions this year? 

KZ: I’m a fan of Hilma af Klint, a Swedish artist who had a popular retrospective at the Guggenheim Museum in 2019. I received her biography as a present recently, and I’m intrigued to visit the Goetheanum in Dornach, Switzerland this summer. It is a structure built by Rudolf Steiner, and home to the Anthroposophical Society, which drew artists both for the architecture and the philosophy.  

BLM: That sounds like an intriguing art destination. On the practical front, are there any resolutions you are making for 2023?

KZ: To dust my books and the tops of frames more frequently! I live in NY, and it’s astounding how dust gets into a home despite closed windows and the use of air filters. Sometimes the particles are not even visible, but then they appear on the dust-cloth. It’s so important to minimize gradual deterioration from environmental factors.

B: Do you discuss this kind of art collection care with your clients? 

K: (laughs) Ah, yes, that can be a delicate conversation. The most common discussions are usually around installation and ongoing care and cleaning, like the dusting. First, always use weight rated hooks and use at least two hooks, unless the artwork is, well, tiny! I have seen mirrors and framed works fall off walls because the hooks weren’t able to support the weight. Also, I recommend hiring an art installer for larger works and/or works suspended from the ceiling. 

If you have delicate artwork in your home, be sure to alert guests and household staff. I’ve seen martini glasses placed on a Donald Judd sculpture by unaware party guests. Be sure to give specific instructions about the art not to touch/clean. We’ve seen instances of household help accidentally damaging works of art because they don’t know it is art, or were not aware how fragile an artwork is. A sculpture shouldn’t be cleaned with all-purpose cleaning spray, for example.

B: Should updated appraisals be a resolution for collectors?

K: Certainly, especially if they haven’t had an updated appraisal in 5 years and/or they are collecting in a genre or an artist in which there has been a lot of market fluctuation, such as women Abstract Expressionists, contemporary Black artists, just to name a few general areas. You know how much money you have in your account, so why wouldn’t you want to know the current value of your passion investments?  And I use the word investment broadly – an investment of time, money, space and intention. 

Appraisals are important not only to make certain you are appropriately insured, but it can also help you make smart decisions about charitable donations, gifts to family members or making the decision to sell the work. It’s one of the most important documents a collector can have, along with purchase invoices, and an insurance policy of course. 

It’s also important to use a professional appraiser, like the staff at Art Peritus. I mention this because in my more than 20 years in this business I have seen appraisals by people who are not qualified. They don’t have the correct credentials. There is not enough information. In one case, a person lied about their qualifications. These types of valuations are not accepted.  

B: Ah, so you take appraisals very seriously!

K: Yes indeed. Every insurance company has a different threshold for the value documentation they would like to see. When requesting insurance for your valuable collectibles, whether art, collectibles or jewelry, you should always have proof of value. Most often this is the invoice from where you purchased the item. If the item has increased in value, an updated appraisal validates the increased value. And a “qualified appraiser” is key. 

B: When considering insurance, what is the difference between Blanket and Scheduled insurance coverage for collectibles?

K: Scheduled coverage separately describes individual collectibles to be insured at a specific value.  Blanket coverage is based off of a blanket value that covers multiple collectibles, and is often used to cover lower-priced valuables. While there can still be a maximum limit per item, each piece of artwork or collectibles is not scheduled separately. 

A collector should also be aware that when an insured has blanket coverage, in the event of a loss, descriptions and valuation will need to be established. That process could be complicated where the loss event also resulted in the loss of the documentation of the items’ descriptions and values, as insureds are usually required to demonstrate proof the item had been in their possession before the loss. An independent agent is a great resource for advice on whether scheduled or blanket coverage makes sense for a specific collection. 

Collectors interested in learning more about coverage generally can also check out various collections related articles at the Berkley One blog here

B: Speaking of Art Insurance, any general advice for collectors?

K: Purchase the right amount of insurance with a reputable, financially strong insurance provider that understands fine art insurance, including the claims that typically occur.  An insurance provider like Berkley One has deep experience in collections, as well as experts within the company who are collectors themselves and can consult with and assist clients throughout the full cycle of the policy—from adding a new valued piece of artwork, to life events like moving or shipping, and more.

B: What sets Berkley One apart from the average insurer? 

K: Having arts expertise on staff is a key differentiator. I can tell you what it is like not to have someone like that on staff. Many years ago when I was renting an apartment, I insured my art with a direct writer (editor’s note: a direct writer is a carrier that does not sell insurance through independent agents). I had purchased an artwork from a gallery in San Francisco, shipped it to my apartment, and requested insurance. I submitted the invoice, bill of lading, and proof it had been delivered as well as a photograph of the art hanging on my wall. The insurance representative insisted on coming out to my apartment to inspect the painting in person to make sure it was what I said it was.  After that I immediately switched my insurance company. Imagine going through such a process when adding any item worth more than $1,000, even though I had provided more than enough documentation supporting the purchase.

I’m not the only expert on staff, of course. I have colleagues with expertise in jewelry, boats, yachts, and classic cars, as well as engineers and risk managers. Subject matter expertise is so valuable, and helps provide peace of mind.

B: In keeping with our new year’s themes, are there any exhibits you are excited to see this year?  

K: I just saw the Meret Oppenheim retrospective at MoMA. The survey of this important Surrealist artist was postponed by Covid, so I was so happy to finally get to see it!  She worked in so many mediums: drawing, painting, theater, sculpture, and also made jewelry. Her persistent need to create is inspiring. MoMA had purchased Oppenheim’s famous Fur Teacup sculpture back in 1936 – it was the first work by a Surrealist artist, so it’s especially poignant to see a large selection of her work at the first American institution that collected her.  

B: Thanks so much for your time, Katja. This inside look into the art industry has been so insightful! Where can readers go to learn more about both you and Berkley One?

K: Of course! Readers can learn more about about Berkley One via our LinkedIn found here or via our website berkleyone.com Additionally, I can be reached via LinkedIn here. 

 

 


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06/Oct/22
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A recent article from ARTnews on “The Great Wealth Transfer” takes a forward look at the implications of the impending transfer of wealth (including art) from the Boomer generation to Gen X and Millennials. In the article, the consensus from Sara McDaniel with Morgan Stanley seems to be that children may not want to take on their parents’ art collections due to differences in taste. Sara recommends the best option for art collectors is to sell a collection before passing, or gift it to an institution.

An accurate appraisal and audit of collections will make assessing these options much simpler. Art Peritus has assisted countless private clients by providing certified appraisals, organizing art collections into management systems, and with preparing estate planning appraisals for inheritance tax and wealth transfer purposes.

One recent example of an Art Peritus Project included appraising an Estate from a High Net Worth collector with over 15,000 objects purchased from all over the world. The art and collectibles ranged in age from antiquity to the 20th Century. The works were valued any where from $5 to $5 million USD.

The project came with many challenges and nuances that we were ready to tackle due to years of experience in handling similar situations including:

  • Many items were packed away in boxes, with very little room to maneuver.
  • There were no pre-exiting inventory or appraisals.
  • Our busy client had very few receipts.
  • We were only given access to the collection over 10 days.
  • Only 1,500 art objects were visible during the first 5 days of the appraisal project. The rest were seen 2 months before project completion
  • The collection included some pieces in very complicated collecting categories with very few ‘qualified’ specialists recognized by the IRS/USPAP
  • The project came to us during the Covid Pandemic, so we were conscious of health requirements.

Despite the challenges presented in the appraisal of this private art collection, we were able to complete the project to the satisfaction of the client. The steps to completion involved the following:

  • Art Peritus employed 22 certified appraisers from our network of vetted specialists.
  • The Estate’s Trust required a “step-up in basis” appraisal for tax purposes. This occurs when the price of an inherited asset on the date of the decedent’s death is above its original purchase price. The tax code allows for the raising of the cost basis to the higher price, minimizing the capital gains taxes owed if the asset is sold later.
  • We established a threshold of value so that the Trust wasn’t paying for unnecessary work from us on objects valued below $500. We always consider our client’s budget.
  • We narrowed down the list of objects to approximately 5,000 items for the report.
  • We provided full comparables for any work with a FMV (fair market value) over $5,000
  • The Trust now has access to the collection in our database to decide how they want to handle deaccession in the future.

Art Peritus has the resources and experience to take on appraisal and art collection management projects of any size with our roster of specialists, project oriented staff and specialized database. What may seem like a daunting task comes together seamlessly with the right resources and art project management experience.