Philanthropic Planning for Art Collections

"The Fine Art of Tangible Assets:  Transforming Collections into Philanthropic Opportunities, " October, 2007. From a symposium convened by Rockefeller Advisors with support from US Trust, 94 pages in pdf. 

• Investment professionals sometimes see art as part of a diversified portfolio, and a way to increase return and reduce overall portfolio risk. 
• With over $1 trillion in art in private hands, planning for its disposition during life or at death is a major philanthropic opportunity. 
• As with, say, a vacation home, art raises intergenerational issues. Will the children treasure or detest the parent's Warhol? Will the parents want a child to have a painting if the child sees it just under the aspect of money? If the Warhol is worth 50% of the estate and there are 3 children, who get the Warhol and who gets short changed?
• A gift of art to a museum is clearly philanthropic. But another way to play it is to sell the art and have the proceeds used for another charitable purpose.
• Families can also establish their own museum (private operating foundation).

An interesting white paper for those of us who do planning, or for donors with an art collection.  I must say it got me thinking of Williams College, where I went to school, and the many curators and art mavens trained there. I sure blew it studying the art of literary satire, rather than the fine arts. The market for satire is pretty much in the doldrums. Few hedge fund operators collect it.  Drug Lords, CEOs, and conquering generals pass it by untouched.  No cat burglar breaks into my Dumpster to steal it.  Today, after 40 years of toiling at Our Noble Trade,  I still can't give even so much as an aphorism away.  Arguably, though, satire, if it hit home and reformed the person, would do the collector more good than any Jackson Pollack. If you know anyone in the market for their Juvenalian word portrait do let me know. Satire, like painting, holds the mirror up to nature. Ut pictura poesis, for all the good it has done me.  Collectors, Buy now! Prices of satire have nowhere to go but up!

Comments

[Jeff Trexler]

This story about art marketeer Larry Salander provides an interesting counterpoint, as does the ongoing Fisk University dispute.

Sometimes I wonder (y'know, when I'm drunk, alone & cynical) whether charitable art valuation isn't basically tulips sustained by the deduction, a la donations in stuffed animal heads before the recent tax reform. Put 90% of this stuff on the open market and it tanks as bad as it did for Salander.

[Phil Cubeta]

How much is the deduction worth? Why buy something for $100 mil in order to get a $35 mil deduction?

Thank you for the links. Both are fascinating. The Salander piece could be a satire by Petronius. Binion invests in Salander's scheme to pump classical art? Benny (the reputed mobster) Binion's son? I wonder too about how much hot money is in this market. Does art figure in the money laundering trades? Sure is easier to move a rolled up piece of canvas from here to there than 100 million dollars bills secreted on the person of your "mules."

[Jeff Trexler]

"How much is the deduction worth? Why buy something for $100 mil in order to get a $35 mil deduction?"

That's not what I have in mind--that's part of the 10% that obtains a high price on the market. My focus is on the scads of, well, we could call it subprime art that passes to charity with the valuation set not by the market but a professional valuation.

Maybe it's a painting that's passed through the family for a few generations. A purchase from an emerging artist thirty years ago who never hit it bit. Mediocre work by a big-name artist. Whatever the backstory, there's a lot of art gathering dust in 501c3s that's not worth what it's said to be worth.

I know the Code requires professional valuations to deal with that problem, but consider the dynamics of the market. An assessor who consistently gives low valuations is not going to get the same business as one who consistently gives high values.

[Phil]

Interesting, now I get it. I heard an excellent talk several years ago by a appraiser. He said that valuation was both art and science. An appraiser needs to know whether the gift is to be valued for transfer to children or transfer to charity. The appraiser can defend a range of numbers. The low number for gift tax and estate purposes. The high number for charitable deduction. The IRS can challenge either number, but that may lead to a compromise. So, yes, I see your point about valuation. Of course the charity has to give a receipt for a certain gift value? So it is proceed at your own risk?