Selling, Gifting Artwork & Legacy Planning
Many people reach a point in their lives when they are considering selling or gifting their artwork. Some are interested in selling to create money for themselves or perhaps to give to a spouse or relative. Others are considering gifting artwork to family, friends, charities, non-profits or even a museum. The content on this page is written to assist you in your thinking as well as provide specifics to help you in these endeavors.
Information in part is provided by Joel Straus, Art Advisor and Appraiser, of Joel Straus Consulting. http://www.jsartconsulting.com 773.769.1997
Information in part is provided by Joel Straus, Art Advisor and Appraiser, of Joel Straus Consulting. http://www.jsartconsulting.com 773.769.1997
Create an Inventory
An inventory of your artwork is a necessary first step regardless of your plan of action. It is necessary, if your artwork has value, to work with an art appraiser as you create this inventory. The inventory should include the artist, title, date, dimensions, edition (if it is not a unique work), condition, inscription (is the piece signed or dated on the front or back?), the place of purchase and purchase price and year (if known), a brief physical description, along with a photograph of the work.
Selecting & Working with an Appraiser
There are three major associations each of which has a search engine that can help you identify a local appraiser:It is important to understand that an appraisal is a written report and the appraisal associations discourage verbal opinions of value.
Appraisers should not have a fiduciary interest at the time they are doing the appraisal nor can they charge based on a percentage of value. Only after the appraisal report has been completed, is it appropriate to ask the appraiser, now acting as a consultant to help you sell or donate it.
In many cases artwork is not of sufficient value to hire an appraiser but unfortunately those owning the artwork are not always aware of this and must engage an appraiser to discover if the artwork has value. There are other instances where artwork has either substantially increased or decreased. Mr. Straus describes instances where art has taken on a “family folklore”. Sometimes the folklore is true and the artwork has attained substantial value. On the other hand, Mr. Straus has encountered situations where the art was purchased many years ago by an ancestor and the art doesn’t have much value. An informed appraiser will research the artwork and worldwide markets to determine if the artwork has sufficient value to sell or whether it should remain a family heirloom with sentimental value.
Appraisers should not have a fiduciary interest at the time they are doing the appraisal nor can they charge based on a percentage of value. Only after the appraisal report has been completed, is it appropriate to ask the appraiser, now acting as a consultant to help you sell or donate it.
In many cases artwork is not of sufficient value to hire an appraiser but unfortunately those owning the artwork are not always aware of this and must engage an appraiser to discover if the artwork has value. There are other instances where artwork has either substantially increased or decreased. Mr. Straus describes instances where art has taken on a “family folklore”. Sometimes the folklore is true and the artwork has attained substantial value. On the other hand, Mr. Straus has encountered situations where the art was purchased many years ago by an ancestor and the art doesn’t have much value. An informed appraiser will research the artwork and worldwide markets to determine if the artwork has sufficient value to sell or whether it should remain a family heirloom with sentimental value.
Information you will need to give an appraiser
Ideally, the appraiser will view and inspect the artwork in person. If that isn’t possible, then you will need to supply the appraiser with the following:
You will need:
So you need to tell the appraiser how you indent to use the appraisal. If the value will determine what you are going to do with the art make sure the appraisal corresponds with the correct value for the intended use.
You will need:
- Image. A high quality color photograph of the front and back with a detailed photo of the artist’s signature (if it is present) and any gallery or exhibition labels.
- Details. The title, date, size height and width if it is two dimensional and the depth if it is three dimensional. (H x W x D), the medium (the materials that the artist used), and the edition number if it is not a unique work.
- Condition. Is the art damaged on any way? This is difficult to assess for the non-professional but if the art has noticeable scratches, tears or mars or has been previously restored, the condition will affect the value.
- Provenance. Provenance is the term used for ownership and exhibition history of the art. Existing labels indicate the history of exhibitions and dealers of the art. A distinguished history helps to substantiate authenticity and adds to the value of the art.
So you need to tell the appraiser how you indent to use the appraisal. If the value will determine what you are going to do with the art make sure the appraisal corresponds with the correct value for the intended use.
Selling
Once you have an accurate inventory that includes a market value of each item, there are two main methods to sell your art depending on urgency, Private sales by a gallery or a private dealer or publicly sold at auction.
Private Sales
Like real estate, quick sales often result in the seller having to accept a good deal less than what the artwork is worth. If you are not in a hurry, you should consign your art to a gallery that deals with the artist or period of the artwork that you own. Most reputable galleries will only take artwork on consignment if they are familiar with the artist or at least the genre of the art. For example, if it is possible to work with a gallery that deals with art of the same period as your artwork, even if they do not have art by the artist you have.
Gallery commissions are negotiable. Galleries structure the commission based on the value, term of the consignment, and how interested the gallery is having your art in their inventory. The advantage of consigning a work to a gallery is that this is a private relationship. If the gallery is unable to make the sale, this is private knowledge and the value of your art is not necessarily diminished; however if art is place up for auction and is not sold, then it has been publicly “burned.” Galleries and their clients will know that its sale was unrealized and it will make it more difficult to sell in the future.
Warning: Over the years a few high profile galleries have gone out of business and the art consigned to them was a loss to their owners even with a signed agreement. You can protect your art by filing a UCC-1 (Uniform Commercial Code-Form 1) with the state agency in which the gallery is located. This becomes a public declaration that you are a secured creditor of that particular gallery and if there is a bankruptcy, you should be protected by the UCC-1 filing.
Gallery commissions are negotiable. Galleries structure the commission based on the value, term of the consignment, and how interested the gallery is having your art in their inventory. The advantage of consigning a work to a gallery is that this is a private relationship. If the gallery is unable to make the sale, this is private knowledge and the value of your art is not necessarily diminished; however if art is place up for auction and is not sold, then it has been publicly “burned.” Galleries and their clients will know that its sale was unrealized and it will make it more difficult to sell in the future.
Warning: Over the years a few high profile galleries have gone out of business and the art consigned to them was a loss to their owners even with a signed agreement. You can protect your art by filing a UCC-1 (Uniform Commercial Code-Form 1) with the state agency in which the gallery is located. This becomes a public declaration that you are a secured creditor of that particular gallery and if there is a bankruptcy, you should be protected by the UCC-1 filing.
Public Auctions
Artwork of value (approximately $20,000or more) can be sold through one of the major auction houses:
If your artwork has substantial value $20,000+ and is by a nationally recognized artist, the major auction houses will offer a free estimate. Christies has an online free estimate service (http://www.christies.com/selling-services/auction-services/auction-estimates/overview/)
Factors to consider if you are auctioning the art:
When you sell artwork you must have information as to the original purchase price and pay tax on the difference between the sales price and your purchase price. Your accountant firm should be able to minimize your tax so consulting with them is important prior to consummating a sale.
- Phillips (http://www.phillips.com/)
- Christies (http://christies.com/)
- Sotheby’s (http://www.sothebys.com/en.html
If your artwork has substantial value $20,000+ and is by a nationally recognized artist, the major auction houses will offer a free estimate. Christies has an online free estimate service (http://www.christies.com/selling-services/auction-services/auction-estimates/overview/)
Factors to consider if you are auctioning the art:
- The timing and location of any sale should be based on art market conditions (with specific reference to the particular artist) as determined by your art appraiser or advisor. This is also true for donations with respect to evaluation for tax purposes.
- Give careful consideration to the timing of making gifting decisions as it is possible you may wish to change your mind due to changes in your financial circumstances or changes in relationships between you and those you plan to gift.
- If an auction house takes items for auction it is common practice to set a reserve, which is the minimum amount that each item will sell for so you should have some idea ahead of time of what you can expect to receive. Auction houses typically take a commission from both the seller and the buyer, which depends on the sales price of the item(s). This commission is often negotiable. It is certainly a good idea to let your appraiser or advisor select and work with the auction house as opposed to trying to do so yourself.
When you sell artwork you must have information as to the original purchase price and pay tax on the difference between the sales price and your purchase price. Your accountant firm should be able to minimize your tax so consulting with them is important prior to consummating a sale.
Legacy Planning
If your artwork has substantial value, it is a good idea to establish a relationship between your estate planner/financial advisor and your art appraiser/advisor. It is important to include your appraiser in this meeting because art as an asset class is quite different from assets that financial advisors typically work.
Understand that legacy planning applies to both during your lifetime as well as after death and gifts and donations are treated differently depending on your wishes.
Passing your art on to spouses, family and friends depends on several things:
Your estate planner or attorney can best advise you on how to handle these matters particularly if your artwork has substantial value. Specificity is extremely important because individual artworks have widely varying monitory values and as importantly have different sentimental values to the potential recipients. Making sure you have clearly indicated your preferences in writing will solve problems that might exist in the future among family, heirs and friends who may have expectations that differ from your wishes. For each artwork it is important to list its location.
Understand that legacy planning applies to both during your lifetime as well as after death and gifts and donations are treated differently depending on your wishes.
Passing your art on to spouses, family and friends depends on several things:
- Do they wish to receive it
- The value of the art
- If you wish the art to appear in your will (as then it becomes part of your estate.)
- If you wish to make individual bequests often prior to your death; it is important as far as gifting is concerned to make sure the value of your gift does not exceed $14,000 in any calendar year for tax purposes (as of 2015 tax year). Remember that there is an annual $14,000 exclusion for gifting without tax and this applies to art as well as to cash, jewelry, personal property and investments.
Your estate planner or attorney can best advise you on how to handle these matters particularly if your artwork has substantial value. Specificity is extremely important because individual artworks have widely varying monitory values and as importantly have different sentimental values to the potential recipients. Making sure you have clearly indicated your preferences in writing will solve problems that might exist in the future among family, heirs and friends who may have expectations that differ from your wishes. For each artwork it is important to list its location.
Gifting to Family or Friends
You need to have an idea as to the value of the art you plan to give. You will need an appraisal if the value exceeds $5,000.This will enable you to better plan on naming beneficiaries. Actual naming should be done in a document prepared with your attorney. There are tax reasons why you might consider gifting items and not including them in your will.
In 2013, the U.S. market for art and antiques increased by 25%, strengthening its worldwide importance with 38% of the global market; however collectors have found their interest in art is not shared with their heirs. It is important, therefore, to be aware of how your heirs plan to treat what you wish to gift to them. Sometimes it is better to sell the art yourself and gift the proceeds.
In 2013, the U.S. market for art and antiques increased by 25%, strengthening its worldwide importance with 38% of the global market; however collectors have found their interest in art is not shared with their heirs. It is important, therefore, to be aware of how your heirs plan to treat what you wish to gift to them. Sometimes it is better to sell the art yourself and gift the proceeds.
Gifting to Museums and Non-profits
There is a big difference between gifting to a museum and gifting to a charity or non-profit. Most museums will not accept art that does not “fit into their collection” regardless of its value. Non-profits will generally accept any art of value often with the intent of selling it to create funds. If they sell within a three year period after the receiving the gift, the IRS can adjust your deduction by the amount realized by its sale.
When you give to a museum, you can get a total deduction of the art based on the Fair Market Value if the charitable organization's mission is related to the art (the “related use rule”). If you are donating to an art institution, then you should get the total Fair Market Value tax deduction.
Remember that appraisals cannot be made earlier than 60 days before a donation. In cases where donors are concerned about whether the IRS may accept a valuation, such as when there are fluctuating markets for similar artwork, an IRS Statement of Value may be obtained for artwork valued at $50,000 or more to provide the donor with certainty.
Capital gains taxes can be postponed by applying an IRS rule used by real-estate investors. Sellers can postpone capital gains taxes if a qualifying exchange structure is used and the proceeds from the sale of the art are used to purchase art of “like kind” within 180 days. The transaction is treated as a reinvestment of capital. The value of the replacement art must be equal or greater than the value of the art that is sold. Sellers must be able to prove that they are investors in fine art and not just a collector and that the principal reason for the purchase and sale was to earn a profit.
When you give to a museum, you can get a total deduction of the art based on the Fair Market Value if the charitable organization's mission is related to the art (the “related use rule”). If you are donating to an art institution, then you should get the total Fair Market Value tax deduction.
Remember that appraisals cannot be made earlier than 60 days before a donation. In cases where donors are concerned about whether the IRS may accept a valuation, such as when there are fluctuating markets for similar artwork, an IRS Statement of Value may be obtained for artwork valued at $50,000 or more to provide the donor with certainty.
Capital gains taxes can be postponed by applying an IRS rule used by real-estate investors. Sellers can postpone capital gains taxes if a qualifying exchange structure is used and the proceeds from the sale of the art are used to purchase art of “like kind” within 180 days. The transaction is treated as a reinvestment of capital. The value of the replacement art must be equal or greater than the value of the art that is sold. Sellers must be able to prove that they are investors in fine art and not just a collector and that the principal reason for the purchase and sale was to earn a profit.
For additional information check out
Treasure or trash? 10 ways to find out. Can't get on Antiques Roadshow? Here's how to find a good appraiser on your own.
http://money.cnn.com/2002/06/03/pf/yourhome/q_appraise/
http://money.cnn.com/2002/06/03/pf/yourhome/q_appraise/
On Giving Artwork to Your Heirs (and minimizing taxes)...
Valuable Art Can Expose Heirs to Estate Tax Rates Up To 40 Percent
http://www.bpbcpa.com/estate-planning/valuable-art-can-expose-heirs-to-estate-tax-rates-up-to-40-percent-by-joseph-l-saka/
http://www.bpbcpa.com/estate-planning/valuable-art-can-expose-heirs-to-estate-tax-rates-up-to-40-percent-by-joseph-l-saka/