Fine Art Asset Management – Tips for Clients

WHEN YOU BUY

Fine Art Asset Management

Sotheby’s Postwar and Contemporary Evening Sale (May 2017). Courtesy: Sotheby’s.

Regardless of where you buy an artwork – at a gallery, through an advisor, at auction, during an art fair, from an artist’s studio, or online – you will want to ensure you have proper documentation at the time of purchase for fine art asset management. This typically includes 1) an invoice with all the artwork details and transactional information, 2) proof of payment, 3) a Certificate of Authenticity with photographs of the work and provenance information, if applicable, and 4) shipping documentation (i.e. the bill of lading). For especially valuable works, consider retaining a third party to inspect the works and prepare the appropriate condition reports.

As a part of fine art asset management, it is important to understand the best way to display and care for your artworks, including framing and installation recommendations, to keep them looking their best and to ensure their longevity. As a general rule, artworks should be displayed and/or stored in climate-controlled areas where fluctuations in relative humidity and temperature are kept to a minimum. Artworks should also not be hung in direct sunlight – particularly works on paper, which are especially vulnerable to light damage. It is advisable to frame photographs and works on paper under Museum Glass, which virtually eliminates reflections and blocks up to 99% of UV rays with its conservation grade coating.

WHILE YOU OWN

Fine Art Asset Management

Eleanora Kupencow, Acrobats (2003), Private Collection. Courtesy: Davidson Art Advisory LLC

All art purchases should be tracked in either an inventory management system or, at a minimum, in a spreadsheet backed up to the cloud and/or an external hard drive. The recommended tracking method for fine art asset management will depend on the size and value of your art collection. For large collections consisting of over 50 works, you will likely want to a database such as galleryManager, ArtBase or ArtBinder.

As artwork values may fluctuate over time, it is advisable to periodically appraise one’s existing art assets to ensure adequate insurance coverage. If you have a regular homeowner’s or renter’s insurance policy, you may be covered up to your policy limit per item minus a deductible. For valuable art, you will likely need a separate add-on floater to specifically cover it, which most insurance companies offer as a supplemental policy. For particularly high-value collections, you should consider investing in a policy underwritten by separate fine art insurance company, such as Chubb, AXA or Hiscox. The brokers at these companies are specialists who understand fine art and how to protect it.

While in possession of your art assets, you may also want to consider leveraging them to unlock capital. As the global art market has expanded, so has the financial sector that lends against it. Today, many collectors around the world opt to leverage their art to gain liquidity for other investments and to buy more art. Traditional banks and specialized non-bank financial institutions, such as Borro Private Finance, will lend money against a portfolio of high-quality art, upending the historical norm of art being a highly illiquid asset.

PLANNING FOR THE FUTURE

Fine Art Asset Management

Lila Acheson Wallace Wing at the Met. Courtesy: Metropolitan Museum of Art

Determining how to monetize and estate plan for art assets requires expertise in a variety of disciplines, including art, finance and banking. Professional art advisors, working in conjunction with tax, legal and financial advisors, can assist with how to incorporate a collector’s art assets into broader estate plans to achieve personal planning and philanthropic objectives, along with the transfer of the collection’s assets through both sales and gifts.

In terms of legacy planning, you can approach this proactively by candidly assessing your goals and attitudes toward your art collection, asking yourself questions such as: Should all or a portion of my collection remain intact? Do I want to donate/bequest any works to specific cultural institutions and/or heirs? You should also be aware of the tax implications of “art collecting” vs. “art investing”.

In the United States, if you retain artwork for over 1 year and sell it at a profit, as an “art collector” you are required to pay long-term capital gains tax on any increase in value. If, however, the work was purchased for “investment purposes”, it may be possible to defer paying capital gains on the sale if you reinvest the proceeds in similar, like-kind property, per Section 1031 of the Internal Revenue Code. The motivation behind owning art for investors is to earn a profit, rather than for personal enjoyment. As an investor, you should present yourself as such to galleries and auction houses, have regular professional appraisals, take steps to increase the value of your collection (i.e. lending works to museums), keep detailed records of your transactions and seek advice from qualified art and tax experts.

Related Blogs:
How to Get Started as a Fine Art Investor

5 Reasons Why Investing in Fine Art is for the Long Term

Establishing a Paper trail for Your Art Collection: What You Need to Know

About the Author:

Jessica Davidson is the founder of Davidson Art Advisory LLC, a NYC-based boutique fine art consulting firm that provides advisory services to collectors and institutional clientele. Focusing on post-war and contemporary art, founder Jessica Davidson assists both connoisseurs and novices build special, highly personal collections by helping them cultivate their tastes, explore the art market strategically, acquire works they love, and effectively manage their collection.