When speaking on the topic of planning for the ultimate disposition of art collections, I offer the following top ten planning tips:
1. Do not leave the ultimate disposition of your collection to chance.  It is surprising how many collectors do not engage in this process and leave the ultimate disposition decisions to their family and advisors, most or all of whom do not have the intimate knowledge of their collection.

2. Use a competent and experienced advisory team. The team should include art experts; such as dealers, gallery owners, curators and restoration experts; risk management professionals; qualified appraisers; private bankers; and attorneys and accountants, all with experience in planning with art. Not only do they need to be on your advisory team, but they need to communicate with one another.

3. Do appropriate risk management. Engage an insurance expert who is specifically experienced with art. You may or may not purchase insurance, but do consider the security of your collection, from theft, fire, water, storm, or other casualties.

4. Prepare and maintain an inventory. This is true for all assets in the form of financial statements, but it is particularly true with respect to art and other collectibles. An inventory is critical to every stage of the planning process, and should be kept as current as possible.

5. Know the value of your collection. Insurance providers and lenders, if any, will require appraisals and periodic updates. Appraisals will be required for income, estate and gift tax purposes.  Even if not required, you should have your collection periodically valued, perhaps every three to five years, depending on how actively you are collecting and on what you are collecting.

6. Maintain records. As part of your inventory, maintain records of ownership and, as the value and significance of the collection grows, further evidence of provenance. This includes all contracts to purchase or sell, actual bills of sale, loan agreements with museums, and so on. Consider title insurance if you have doubts about the provenance of any piece you are considering for purchase.

7. Ask the big question. Involve your family. Do they share your passion for your art? If so, planning should focus on how to transition the art to them, whether that is now or later. If not, and there are other financial assets or you feel they are otherwise provided for, then explore your charitable options.

8. Consider liquidity. Art is by its very nature an illiquid asset.  It does not provide cash flow or income during life, and although it may be sold, that comes with a high tax cost, and perhaps not quickly enough to address estate liquidity needs.  Art lending may be an appropriate solution to address this lack of liquidity.

9. Consider charity. Given the expense of selling, and the opportunity cost of wealth transfer, the “charitable solution” is often the most tax efficient way to keep your collection intact.  And if the “charitable solution” is right for you, consider lifetime donations as this will entitle you to a federal income tax charitable deduction in addition to estate tax savings.  Most important, do not surprise the museum (or other charity), if you are leaving art to them. Not all museums will want your art. It may not fit their collection, or their storage vault. Talk to them now about your wishes, even if they are not carried out until later.

10. No surprises. Give your family, and your personal representative, clear direction on what your estate will include, and clear direction on what you want to happen. And while you are going through the planning process, make sure your advisors know the extent and value of your collection.
Trying as the planning process may seem, try to enjoy the process of planning for the disposition of your collection. It is certainly not as much fun as building the collection, but it is ultimately just as important.

Mr. Slugg has also served as an adjunct professor at Texas Christian University and Texas A&M College of Law.  He is a frequent speaker on tax and financial planning topics, especially as they relate to art and collectibles, and is frequently quoted in the Wall Street Journal, New York Times, Forbes, Barron’s and other business publications.  He is the author of the Handbook of Practical Planning for Art Collectors and Their Advisors, published by the American Bar Association’s Section of Real Property, Trust and Estate Law.

Mr. Slugg is admitted to practice law in Texas, is a member of the State Bar of Texas, the American, and Tarrant County Bar Associations, the Tax and Estate Planning Section of the Tarrant County Bar (Chair, 1999-2000), the Lone Star Chapter of the Partnership for Philanthropic Planning, and the College of the State Bar of Texas.  He currently serves as Co-chair of the American Bar Association’s Real Property Trust and Estate Law Art and Collectibles Committee, as well as several other leadership positions.  Mr. Slugg received his J.D. degree from the Ohio State University College of Law, and his undergraduate degree from Wittenberg University.

“Collectors aren’t sellers.” It’s long been a maxim that’s defined the philosophical relationship between a collector and their art. This motivation to acquire or commission great works of art has taken many forms since the advent of Renaissance patronage. For the royal courts, it was power and prestige; for the aristocracy, recreation and pleasure; for the great industrialists, cultural refinement; and for the avant-garde, social stratification. Only recently have collectors begun to acquire pictures with at least one eye judiciously fixed on the financial implications. Yet despite increasingly predictable media accounts of the financialization of art, collectors still tend to be quite nuanced in their drive to collect.
To better understand the nuanced and evolving relationship between collector and collection, a 2016 U.S. Trust study surveyed 684 wealthy individuals, 30 percent of whom had greater than $10 million in investable assets. The results revealed an interesting generational divide between more traditional collectors still driven by connoisseurship and aesthetic pleasure and next-gen collectors increasingly concerned with how art behaves as a capital asset.

Six Key Characteristics
We identified six key cultural characteristics of the new breed of collector, each carrying implications for art market and estate planning professionals.
1. An eye on investment: Perhaps because they grew up during one of the greatest art market expansions in history, younger collectors are significantly more financially driven in their collecting and are more likely to view collecting art as a way to build significant wealth. This will require their financial and estate planners to incorporate this asset class into financial modeling and to focus beyond basic estate planning specifically for this asset.
2. Heightened expectations: Younger collectors are less likely to view art as a risky investment and more likely to expect sustainable price appreciation in the future… likely because they haven’t experienced large down-cycles like the early 1990s pullback.
3. More commercially minded: Perhaps because of the rapid expansion of the secondary market, the ubiquity of art advisors and access to lower-cost digital sales channels, millennials are much more comfortable selling their art as they build their collections. The downside is that as transactions increase, so do taxes and transaction costs. As a result, tax and financial advisors will need to be engaged earlier to help mitigate the impact of federal and state taxes.
4. Art as loan collateral: Younger collectors are more willing to use their collection as loan collateral to take advantage of strategic investment opportunities. Though proceeds of art loans may be used to acquire more art, often proceeds are used to accomplish other personal or financial goals.
5. More socially engaged: Millennial and Gen X collectors are very socially engaged within the art world’s new globalized experience economy. Within this community, art collecting has become an important means for social and political advocacy on an international stage. Moving beyond the borders, though, presents additional regulatory issues which planners must be mindful of.
6. A philanthropic mindset: Younger collectors are more apt to gift their art to nonprofit entities, while older collectors are far more likely to gift their art to family.

Effect on Planning Professionals
Art (and other collectibles) are probably the most difficult assets to incorporate into an overall tax and financial plan. They’re by their very nature illiquid, don’t produce cash flow (absent a sale), but most of all, they’re among the most “emotional” assets that a collector owns. Collectors, at least traditionally, are more passionate about their art than they are about their stocks, bonds, real estate and perhaps even a family business. In short, art hasn’t historically been viewed as a financial asset.
As the U.S. Trust study suggests, this mindset may be changing for younger and newer collectors, who consider the financial and investment aspects of owning art much more so than in the past. For planners, this means that conversations about appropriate planning techniques and ownership structures need to take place earlier in the planning conversation. For example, an active collector, who will be both selling as well as buying, may wish to own their art through a family partnership or trust rather than outright. And although record keeping has always been important, it becomes even more important when the collector is viewing their art more as an investment than merely for its aesthetic value.
Both income taxes (federal and state) and transfer taxes become more important than ever, as younger collectors tend to conduct more transactions.
And as younger collectors focus more on this asset class, their advisors need also to broaden their knowledge of the rules unique to this area and to their clients’ increased activity.

Mr. Slugg has also served as an adjunct professor at Texas Christian University and Texas A&M College of Law.  He is a frequent speaker on tax and financial planning topics, especially as they relate to art and collectibles, and is frequently quoted in the Wall Street Journal, New York Times, Forbes, Barron’s and other business publications.  He is the author of the Handbook of Practical Planning for Art Collectors and Their Advisors, published by the American Bar Association’s Section of Real Property, Trust and Estate Law.
Mr. Slugg is admitted to practice law in Texas, is a member of the State Bar of Texas, the American, and Tarrant County Bar Associations, the Tax and Estate Planning Section of the Tarrant County Bar (Chair, 1999-2000), the Lone Star Chapter of the Partnership for Philanthropic Planning, and the College of the State Bar of Texas.  He currently serves as Co-chair of the American Bar Association’s Real Property Trust and Estate Law Art and Collectibles Committee, as well as several other leadership positions.  Mr. Slugg received his J.D. degree from the Ohio State University College of Law, and his undergraduate degree from Wittenberg University.