Wills, Estates, Trusts and Charities: Professional Advice for Estate Clients With Art Assets
If the estate you are handling has some real objects of art, you will either need to divide them equitably in some way, sell them off and liquidate or donate them to charity for a tax deduction, or, a combination of these.
To keep everyone happy, the art objects should be redistributed in the optimal way, and it is best to retain an art professional to help assess the situation and recommend the best course of action, not just for all the art in the estate, but for each individual piece. In any event, they will need to be appraised by a real appraiser, not someone who gives an auction estimate, or an insurance company who will simply be able to tell you what the item would be insured for. You will need real values. But, no need to worry. The umbrella of services required can be supplied by an art advisor, who may also be an appraiser, dealer or some other art professional. To find one of these, a good place to check is the International Association of Professional Art Advisors (IAPAA) in New York or an appraisal society like the American Society of Appraisers.
Getting Ready for the Market
The inherited art will first need to be appraised. A report on it should refer to the art’s condition and provenance (history of ownership), allude to its authenticity and state the authorship, as well as outline some proof of ownership. All of these issues are entirely relevant and will need to be addressed so that values can be assigned and the art taken into the secondary market. Choosing an appraiser is the most important consideration in the valuation process because this person must be familiar with the relevant and current market and the type of art being appraised. He or she also must be familiar with the proper standards of appraisal methodology, including the Uniform Standards of Professional
Appraisal Practice. Appraisers should also be affiliated with an appraisal society that has a code of ethics. When you know the values, and this is the fair market value, appropriate for estates, you can proceed.
A certified appraisal is a legal document and must include, among other things, the appraiser’s qualifications. Also important is that the appraiser’s fee not be contingent on a value conclusion, nor should the appraiser have any involvement in the sale of this art, since this is considered an unacceptable conflict of interest. If your art advisor can broker a sale, then a colleague, working independently, would be needed to do the appraisals. So as not to delay the settlement of the estate, it is important to address the following issues: authorship, authenticity, proof of ownership, provenance and condition.
If the art remains in the hands of the inheritors, you may only need to appraise it. If they want to sell it, all the above things will need to be done, and the art advisor will put it all together, as well as make recommendations as to where and how to market each item. Without doing all of this, the art will not fetch the best price, or it might not sell at all.
Many artists do not sign their work, but authorship can still be proven with professional research. Also, there may be a catalogue raisonne, or complete eye of the most important works, or sometimes a comprehensive compilation of all the work by an artist. The art advisor can report on same.
The best way to prove authenticity is to go to the artist. If the artist is deceased, dealers who have had a long association with the work may be acceptable authenticators. Also, there are designated authenticity experts for most well-known deceased European and American artists who can supply a certificate of authenticity. This can cost from $500 to $1,500.
Proof of Ownership
Clear title is absolutely necessary before any money changes hands. This is especially true in light of recent discoveries of enormous amounts of stolen and looted art appearing in respected museums worldwide. A bill of sale is a good indication of title. Other things may suffice, including photos or catalogs with the art shown, shipping documents or restoration reports, etc.
The history of ownership needs to be established to the fullest extent possible. Frequently, art was purchased at a gallery and stayed in afamily for decades. If this is not the case, gaps in provenance may raise questions about clear title. If this is a concern and the art predates 1945, the Art Loss Registry in New York can do a search for $75. The status of the previous and current owners will have an influence on the art’s value. Famous owners can mean higher values. The International Foundation for Art Research (IFAR) in New York also provides art research on authenticity, authorship and provenance. Your art advisor may be able to provide this directly or make arrangements with either this source or other recognized scholars.
Naturally condition influences the value of the art. Even if your old Picasso has a few small nicks and layers of grime, all is not lost. Competent art restorers should be able to fix these problems. Old items usually have age and damage issues, often from the environment, and an incompetent restoration makes things worse. Condition problems may not destroy the value, so it is often advisable to allow the next owner to choose his or her own restorer, and then the estate will not have to deal with this issue. The art can be appraised in a prerestored condition.
Which Value Is Most Valuable?
Appraising for estate purposes is a little different than appraising for insurance. Value in dollar amounts is contextual; this depends on the place (city or country) or the venue and the method of the sale. Your client may want to know: “What is the one and only value?” In fact, there are different value amounts for the same item. Insurance valuation is the highest, since it amounts to retail replacement. The next is the fair market value, which is used to value the estate and for charitable donation for tax credits. Next is the liquidation, or cash value, which is the wholesale amount that can be realized at an auction or through a sale in the secondary art market. Many estate collections are disputed because the value used is what a dealer or gallery would sell the art for, and this is taken as the real value. In fact, your client would realize only a portion of this sale price. If your clients want to keep or donate the art, your appraiser should supply the fair market value, and if they wish to sell, then cash value is used. Should you decide to sell the art, you can do so in the secondary dealer market or by auction. It may be advisable to consider each item separately and distribute to the most appropriate dealers. It is likely that the art was acquired from more than one source, so makes sense to redistribute it that way too. Some art will actually do better at auction, and some artists’ work never sells in this arena. Dumping the entire estate collection into auctions may not be the best move, but an auction may be a good choice for some of it. The downside of an auction is that you cannot control the actual sale price. That price could be surprisingly high, or the item may not sell at all. When this happens, and it does, the art could then bear the tag of being a bit undesirable.
Also, be aware of the commission auction houses take, which could be as high as 20 percent, plus 5 percent for insurance. These costs, added to other administrative costs, could mean your client realizes only about 65 percent of the auction sale price. It may be a good idea to try a reputable dealer appropriate for each item instead. Your art advisor should be able to place each item into the best possible solution for the objectives of your estate’s inheritors, get the property ready for the market and supervise all aspects of selling. If any items are problematic, for example, if the authenticity cannot be readily proven or the prognosis of the restoration is in doubt, you may want to put these items aside so as not to hold up the distribution of the rest.
Published with permission from The Lawyers Weekly.
Bonnie Anne Kagan, of Kagan Fine Art Appraisals, Toronto, Ontario, Canada, is a Candidate member of the American Society of Appraisers. Visit her Web site at www.kaganappraisals.com.