(I Think) I Hereby Bequeath My Art To…

What you should consider before donating art to a museum or other charity

Bequeathing valuable art to a charity can be as complex and confusing as a Salvador Dali painting. The full value and benefits can be jeopardized without proper planning. If you’re thinking about donating particular pieces or your entire art collection to a museum or other charity, you should be aware of the related implications and address the numerous issues as part of your estate plan in order to minimize future problems.

Before you even decide where and how you want to donate your collection, the first step is to protect your art and other valuables. A valuable articles insurance policy can provide supplemental coverage for high-end items such as jewelry, antiques and artwork. Adding this coverage will increase your insurance premiums but will also eliminate deductibles and caps on coverage. Be sure to provide your insurance broker with a complete list of the items you want to insure and keep it updated so he or she can recommend an appropriate coverage level and policy.

Timing a donation can be tricky because art trends ebb and flow. Certain types of art may be more valuable at specific times based on changes in the art industry as well as supply and demand. In some cases, value might be maximized by selling or contributing the art prior to death rather than waiting to make a post-mortem gift. A key auction or a significant discovery in the art world can have a positive or negative impact on a particular piece.

The next generation may not care, appreciate, or understand the value or significance of a special piece of art. Therefore, art is often donated rather than passed to heirs. In addition to estate tax and valuation implications, there are many other issues to consider if you are thinking about donating your art.

Donating to a museum

For purposes of this discussion, we’ll assume that the art being donated is a painting. When you’re considering bequeathing a painting to a museum, you must first determine whether the painting is an appropriate gift for that specific museum. The following are a few things to consider.

Art style: Is the art appropriate for the museum’s style? A painting by Miro would not be appropriate for a conservative, traditional art museum. Such a piece would most likely be accepted and the gift appreciated, but it may be sold, stored, or hung in a backroom. If the intention of the donor was for the piece to be viewed and enjoyed, this would not be an optimal situation.

Preservation requirements: If the painting (or other type of art) has specific preservation requirements (e.g., weight, humidity, light, condition, cleaning, temperature), you should consider whether the museum has the ability to meet these needs. For example, the Mona Lisa hangs in the Louvre in a custom-built, climate-controlled, bulletproof enclosure with infrared and ultraviolet protection, access limitations, and security.

Operational considerations: A museum can have challenges of its own which could impact its future, such as the lack of adequate capital or leadership. If art is contributed to a museum that has financial issues, the gift may actually be an additional burden on the museum. Even if the museum is in a strong financial and liquid position, a market correction or bad investment decisions can change its financial stability quickly. And what happens to the painting if the museum closes after the piece is bequeathed? A museum’s history, mission statement, and strategic plan should all be reviewed and the curator and board of trustees interviewed before making the final decision.

Legal considerations: There also may be legal considerations and compliance requirements with federal, state, and local laws and other governing bodies. You should also consider if you want to enter into a legal agreement with a museum (although these can be challenging) and which qualified appraiser should value the artwork before you donate it.

Transportation: Proper transportation can be crucial to avoid damaging a valuable piece. Museums usually have a vetted list of qualified movers. Private client divisions of the top insurance companies (e.g., AIG, Chubb, PURE, ACE) and the top art auction houses (e.g., Sotheby’s, Christie’s, Heritage) are also good sources. In many cases, additional insurance is needed to cover an item in transit, and that cost may be absorbed by the donee.

Donating art to other charities

If you are considering gifting a piece of art to a non-museum charity, there are additional issues you need to consider because the organization might not be accustomed to dealing with high-value items.

Ability to handle tangible gifts: Certainly, the value of a tangible gift can be significant to your favorite local charity. But is this charity able to handle this type of contribution optimally? If there is a lack of knowledge, sophistication, or money to pay for proper advice, the charity may sell or dispose of a piece at a significant discount to its fair market value, diluting the impact of your gift.

Value of donation: If a disproportionally large financial gift is given to a charity relative to its size, the charity may not have the expertise, experience, sophistication, or infrastructure to handle the dollar value. And such a gift could change the charity’s underlying fundamentals. So you should consider the appropriateness of the size of the donation.

Gifting made easier with estate planning help

But not to worry! There is help and there are alternatives. Many of the large donor-advised funds generally are experienced in handling these types of issues. You can make gifts to those funds with directives rather than making outright gifts. Attorneys who have experience handling these matters as well as the private client groups of both the large banks and top insurance companies are also good resources for planning and assistance in these matters.

And a qualified accounting professional experienced in estate, trust and family office issues can assist you with sophisticated estate planning strategies that can help maximize the impact of your donation while minimizing your estate and gift tax obligations.

There are many issues that you should consider when donating valuable art to a charity; this blog post only touches on a few. However, while the items listed above are not all inclusive, the important thing to keep in mind is that proper planning is needed so that the donor’s desires and goals are accomplished and the value of the contribution is maximized for both the donor and donee.

If you have questions about the implications of donating art to charity or other issues related to your estate, contact me or another Kaufman Rossin professional.