There are four phases of collecting art:
- Building The Collection
- Protecting The Collection
- Estate Planning
- Selling The Art
Building The Collection
The first step is deciding what to buy. It’s important to seek good advice about the type of art you want to collect. There are art specialists at auction houses like Christie’s and Sotheby’s and respected dealers who know the market. A good advisor can also keep an eye out for interesting pieces that come available.
It’s also important to only buy from trusted sources. Investigate the seller’s background and avoid buying online from unproven websites.
Once you have identified a work you might want to buy, it’s important to learn a work’s provenance – how did the work get from the artist to the seller? This due diligence can help you avoid fraud.
The work’s physical condition is also a key factor. Over time, a work may suffer damage, and you should know of any damage before making your bid. You should ask the seller for a condition report that will identify any damage the work has suffered and repairs made. You may also want to have your own expert examine the work.
In a famous example, Steve Wynn, famed art collector and founder of several Las Vegas casinos, accidentally put his elbow through Picasso’s Le Reve. Wynn had agreed the day before to sell the painting for $139 million. Not all was lost; Wynn later sold the repaired painting to the same buyer for $155 million.
It is also important to consider how and where to take delivery. Some states impose sales tax that may apply to art sales depending on how the buyer takes delivery. For example, taking delivery in New York may subject the buyer to New York sales tax, even if the buyer ships the art out of state. Having the seller arrange the shipping may avoid this issue.
Protecting The Collection
Once you have started your collection, the next step is protecting it. Art may suffer damage due to a variety of causes, including sunlight, moisture, heat, pollutants or accident.
Direct sunlight can cause art to fade. If your collection is in a room with windows, consider putting UV film on the windows. By the same token, carefully monitor the temperature and humidity in the room where you keep your art as heat and moisture can also cause damage. Be careful placing art above working fireplaces.
If you have to move your art, use experienced art packers and shippers. Similarly, use a specialized art storage facility if you have to store your art.
It’s also important to properly insure your collection. While a homeowner’s policy may provide some coverage for art, it may not be sufficient. You may wish to consider scheduling specific works separately or having a dedicated fine art policy. Some carriers have more expertise in insuring art. McGriff Insurance advisors can help you identify the right carrier and coverage levels.
A key to having the proper amount of insurance is to get frequent appraisals for each work in your collection. Art fluctuates in value and a change can leave you under or over insured.
Estate Planning With Art
Absent other planning, art will pass with other assets based on your will or trust. The executor or trustee will have to decide whether to sell the art, donate it or pass it to beneficiaries.
By contrast, advance planning gives you the opportunity to decide what happens to your collection. Consider asking family members what they would want to do with the art. If no one is interested in keeping it or there are disagreements among the family, a sale or donation to a museum or favorite charity during life or at death may be the best route.
As with buying art, it is important to get professional advice about when and how to sell art. The timing may not be right to maximize value. For example, if there are currently similar works on the market, you may not get as high of a price. As with the Steve Wynn example, you may also need to identify and repair any damage before you sell.
There are several ways to sell art, including an auction and a private sale. If you go the auction route, the auction house can advise on issues like the opening price and whether to set a reserve (minimum) price.
Remember to consider the tax consequences of a sale. If the work has increased in value, you may owe capital gains tax on the appreciation.
With proper planning, collecting art can be personally and financially rewarding. Please contact your BB&T Wealth advisor to discuss how BB&T can assist you with these issues in more detail.
About the Author
Senior Vice President Business and Financial Planning Strategist