There are two certainties in life: death and taxes. What happens when you combine death, taxes and art?
Many of us dream of having a home with a beautiful or captivating piece of artwork. But you can’t take it with you when you go. If you have artwork that is part of your estate, then planning for what will happen to it after you’re gone is something that you need to do now. Being clear about your intentions and understanding what the consequences are of your decisions is all part of preparing a comprehensive estate plan.
Fall Out Over Art and Legacy
When Sir Michael Butler, former adviser to Margaret Thatcher, died, he left behind an £8 million Ming vase collection. It is 50 years worth of collecting and contains 500 pieces of 17th Century Chinese porcelain that many affluent Chinese collectors would be very keen to obtain. The collection is also a priceless cultural legacy.
For six years, though, the children of Sir Michael Butler have been fighting over the collection. The case has been damaging to the family in many ways, not the least of which the two younger siblings Katharine, 48, and her brother Charles, 49, are no longer on speaking terms with Caroline, 62, and James, 50. The only communication now is via legal letters between the older and younger siblings. The older siblings have fought and won to have the Butler Family Collection divided. They wish to have their share of the collection moved from the private family museum in Dorset.
Katharine says she is heartbroken. “It’s a cultural tragedy,” she said. “The world’s best collection of Chinese porcelain from that era will be broken up and dispersed, when our father made it very clear he wanted it kept together. For me, the pieces aren’t just pots – they represent my father’s extraordinary achievement. He created the collection meticulously over 50 years.” Although Sir Michael stated in his letter of wishes that the collection be kept together, it is not a legally binding document. Katharine and Charles have asked to buy Caroline and James out, but they refuse. In two months time the siblings will be required to take turns choosing a piece each until they have 125 pieces each from the collection. Katharine says, “The act of doing that will be the most devastating moment of my life. It’s completely unimaginable.”
A Family Collection with Family Connection
It is possible to divide an estate thoughtfully with the deceased person’s wishes in mind.
For other families, though, there is much grace as they deal with their loved one’s estate. Earlier this year the great-grandsons of the famous Australian clothing company founder Henry Bucks, Jonathan and Timothy Cecil, were selling items from their mother’s estate. Suzanne Cecil, who died in January aged 95, had art, antiques, furniture and a house as part of her extensive estate. One piece worth more than $150,000 is a Fred McCubbin landscape painting. “She loved to surround herself with things of beauty and this auction reflects her refined and eclectic taste,” Jonathan Cecil said.
Not all of the estate pieces have gone to auction. “The family has kept things precious to the family, but is putting on to the market all the things we think should be enjoyed by others,” he said. “It’s truly a reflection of her taste and a generational need for change,” he said of theoffered lots. That Henry Bucks is fifth-generation and wholly owned by the family is testament to “a lot of patience, communication and a glue that holds it all together,” Jonathan Cecil said. It is these elements that seem to be missing from such a different story with the Butler family and their Ming collection.
And from a practical viewpoint, the legal costs for the Butler family would be vastly greater than the Cecil family, simply because the siblings cannot agree on what to do with the estate and because it’s been drawn out over six years.
Consideration and Communication
Estate planning can be tricky and especially so where art is concerned. It is crucial for those with art to include it specifically in their estate planning because otherwise there may be nasty tax surprises for beneficiaries who may not be that interested in the artwork or the tax implications. It is important to get professionals to help think through the different issues related to estate planning and artworks. “As somebody’s art portfolio gets more valuable, it becomes a more significant item in their financial and tax lives,” said Michael Delgass, managing director of Sontag Advisory, a financial planning firm in New York. Like collecting itself, the planning surrounding it has tangible and intangible aspects, especially involving legacy issues, Mr. Delgass said. “If you have a very valuable art collection, you may feel responsibility to the public to preserve it,” he said. Meanwhile, “it’s not a given that just because you love it, your kids will love it. Do you want to allocate family resources to hold that forever?”
One 80 year old woman had an art collection worth US$250,000. She was hoping that her daughters would manage the art collection after her death. On the advice of her financial adviser, Mark Van Mourick, president of Optivest, Inc., she spoke to her children about what she was planning (something she hadn’t done before). Soon it was clear that her daughters were not interested in looking after the collection and would prefer to sell it. “This came as a disappointment to the client,” says Mr. Van Mourick, “But once we had that information we could figure out what the next best thing for the collection was.” The daughters were relieved to have this issue resolved before their mother’s death. Mr. Van Mourick says that addressing concerns about estate plans can be a sensitive subject, but it’s an important conversation to have.
Of course, when selling assets in the estate, there are taxation issues to consider. Selling a valuable art collection (or any estate asset) without obtaining legal advice could incur enormous tax obligations. Rather than hoping that the beneficiaries will preserve the collection, it’s important to make plans for the possibility that they will sell it. A testamentary discretionary trust could be one way of making sure that tax issues are considered and minimised.
There are many issues to consider when estate planning. It won’t just benefit you here and now, but will help your family as well. To speak to one of our experienced estate lawyers, please contact us today. We offer a free, 10-minute phone conversation.