Art Wealth Management with One Art Nation co-founder Julia Wehkamp

One Art Nation

ALL OF THE MAJOR BANKING INSTITUTIONS NOW OFFER AN EXTENSIVE RANGE OF ART SERVICES FOR INDIVIDUALS AND FAMILIES AND INSTITUTIONS. AN INNOVATIVE IDEA WHEN CITICORP INITIATED ITS PROGRAM IN 1979, NOW BANKS HELP CLIENTS BUILD, FINANCE AND PROTECT THEIR COLLECTIONS. CITI PIONEERED THE CONCEPT OF ART AS COLLATERAL AND NOW U.S. TRUST, FOR ONE, OFFERS A WIDE RANGE OF CAPABILITIES.  FOR INDIVIDUALS, THEY HELP COLLECTORS UNLOCK CAPITAL BY LENDING AGAINST COLLECTIONS, DESIGN ESTATE PLAN OPTIONS TO ADDRESS TAX AND OTHER IMPLICATIONS OF OWNING AN ART COLLECTION, AND HELP COLLECTORS PREPARE FOR THE SALE OF ARTWORKS VIA CONSIGNMENT SERVICES.

MORGAN STANLEY’S BLUE RIDER GROUP BRINGS SERIOUS EXPERTISE TO BUYING ART AS WELL AS FINANCING IT, ADVISING ON A PURCHASE AND PROVIDING TAX EFFICIENT PLANNING. INDEPENDENT FIRMS, SUCH AS ARTEMUS, OFFER INNOVATIVE ART FINANCIAL AND LEASING AND OTHER FIRMS, SUCH AS THE WINSTON ART GROUP, OFFER APPRAISAL SERVICES AND LIAISONS WITH MAJOR BANKS FOR FINANCING USING ART AS COLLATERAL.

IT IS A WORLD WHICH IS EXTREMELY IMPORTANT FOR THE ART PROFESSIONAL TO UNDERSTAND AS SO MANY COLLECTORS NOW LEVERAGE THEIR ART COLLECTIONS IN THE SAME WAY THEY DO THEIR OTHER ASSETS.

Art Wealth Management Program
One Art Nation

ONE ART NATION OFFERS AN EXTREMELY COMPREHENSIVE COURSE THAT COVERS THE FOLLOWING.

www.oneartnation.com/course/art-wealth-management

• Understanding the Art Market
• Understanding Pricing and Appraisals in Art
• Legal Aspects of Art Transactions and Risk Factors in Art
• Art Investment: Passion Asset vs. Equities and Fixed Income
• Art Finance Solutions in Wealth Management and Estate Planning

TODAY, THE LRFA BLOG IS DELIGHTED TO WELCOME BACK THE CO-FOUNDER OF ONE ART NATION, JULIA WEHKAMP, TO PROVIDE DETAILS!

Julia Wehkamp
Co-Founder
One Art Nation

JULIA, THANK YOU FOR YOUR CONTRIBUTION.

WHAT DID YOU THINK WAS LACKING IN ART EDUCATION AT THE TIME THAT ONE ART NATION WAS LAUNCHED?

The market was lacking an unbiased source of accessible education, so we created one by working with experts and professionals from various areas across the globe. Although we include cultural aspects of the art world, we focus on the practicalities of collecting, thereby increasing confidence in purchasing and overall collection management decisions of art lovers. Since content is offered online, collectors cannot only access the talks and courses for free, but they are able to watch at their convenience. Both live and archived content include interactive components, allowing participants to communicate with the experts, asking questions and sharing experiences in an anonymous setting. This is key for a lot of collectors, particularly those new to buying art. An unintimidating source of information was sought across the board.

Aside from online talks for collectors, most recently, we have received multiple requests from members to offer art market education for professionals. These are focused online curricula with an enrollment fee, such as Art Wealth Management and Art Advisory 101 and 201.  

ONE OF THE MOST BENEFICIAL PROFESSIONAL PROGRAMS YOU PROVIDE IS AN ONLINE ART WEALTH MANAGEMENT CURRICULUM. WHAT DOES THIS INCLUDE?

The Program is an introductory course on the art market from an investment perspective.  You see, the art market has grown substantially. Sales in the global art market reached $63.7 billion in 2017, up 12% from the previous year, according to a 2018 study from Art Basel and UBS. The U.S. made up the largest share, accounting for 42% of the sales by value. Nonetheless, it’s a market that is opaque for most financial advisers. A 2017 art and finance report from Deloitte found that 88% of wealth managers felt their firms should offer art investing services, but most do not have the in-house expertise.

Therefore, we created the Art Wealth Management Program, which consists of a series of informative and interactive online courses that have been created to give wealth managers, private bankers, family offices and other financial advisors a true understanding of how the art world operates in comparison to the financial markets.

YOUR ART WEALTH MANAGEMENT COURSE COMES WITH CE CREDITS FROM WHICH INSTITUTIONS?

By meeting very specific criteria, the program has been accepted by the CFP Board for CERTIFIED FINANCIAL PLANNER™certification, by the Financial Planning Standards Council (FPSC) for CE accreditation, and by CECAP for IIROC Professional Development CE.

It is the only active continuing education program that focuses solely on art wealth management, according to Mary Kay Svedberg, director of education at the CFP Board.

IN OUR NEXT LRFA BLOG POST, JULIA WILL EXPAND UPON THE EDUCATIONAL PROGRAMS THAT ONE ART NATION OFFERS PROFESSIONALS IN THE ART WORLD. THEY ARE SO COMPLETE, THOROUGH AND INTERESTING AND CAN NOT ONLY GUIDE SOMEONE ASPIRING OR NEW TO THE FIELD BUT ALSO PROVIDE PHENOMENAL REFRESHER COURSES FOR THE SEASONED PROFESSIONAL.

EVERYONE IN THIS BUSINESS SHOULD HAVE A LOOK!

UNTIL THEN!

Practical Planning for Art Collectors and Their Advisors, Part 1 The Ancillaries

RAMSEY SLUGG
Managing Director, US Trust

SUMMER IS A GOOD TIME TO TAKE CARE OF THE CHURLY CHORES THAT WE ARE TOO BUSY TO ADDRESS THE REST OF THE YEAR.  REPAINTING A BEDROOM, GIVING AWAY THINGS THAT ARE UNUSED OR NEVER WORN, AND ON A MORE SERIOUS NOTE, HANDLING THE PART OF ART COLLECTING THAT DOESN’T HAVE THE SAME THRILL AS THE APPRECIATION OF A WORK ACQUIRED SOME TIME AGO THAT CONTINUES TO BRING JOY OR THE EXCITEMENT OF THE MOST RECENT ADDITION.

THE MORE YOU COLLECT AND THE MORE VALUABLE THE HOLDINGS, HOWEVER, THE MORE IMPORTANT IS PLANNING FOR THE FUTURE OF YOUR ART COLLECTION.

TODAY, WE HAVE THE HONOR OF WELCOMING RAMSAY SLUGG TO THE LRFA BLOG TO DISCUSS ALL THE WAYS, ADVANTAGES AND DISADVANTAGES, OF THE ASSET MANAGEMENT OF YOUR ART COLLECTION.

Ramsay H. Slugg is a managing director and member of the National Wealth Planning Strategies group at U.S. Trust, Bank of America Private Wealth Management. He is a past chair of the Trust and Estate Division’s Charitable Planning and Organizations Group and current co-chair of the Art and Collectibles Committee of the Income and Transfer Tax Planning Group. He is the author of Handbook of Practical Planning for Art Collectors and Their Advisors, published by the Section.

Art is an asset of passion. Coupled with its unique financial characteristics, this makes art perhaps the most difficult asset to incorporate into an overall estate and financial plan.

This is the first of a two-part article based on the author’s book, Handbook of Practical Planning for Art Collectors and Their Advisors. Part 1 focuses on “The Ancillaries,” those matters that the serious collector should take into consideration regardless of the ultimate disposition of the collection. Part 2 will focus on planning for the ultimate disposition of the collection. Although this article focuses on art, most of the discussion applies to the broader world of collectibles, including coins, stamps, antiques, and collectible firearms.

For many collectors, not only is their art among the most valuable assets that they own, but also they are more passionate about it than they are about their stocks, bonds, real estate, and sometimes even the family business. They have spent considerable time, energy, and resources to develop their own art expertise and have built a collection according to their personal aesthetic tastes. Collecting art is far more than a weekend hobby or merely an activity of home decoration; collecting has become a passion.

Although collectors probably realize that there will be some sort of disposition of their art, they most often are focused on the passion of collecting, not disposing. When they do consider the ultimate disposition of their collection, they are often overwhelmed by the seemingly endless number of choices of what to do. When faced with so many perceived choices, human nature takes over and often results in the selection of the default planning option—doing nothing. And often, a collector’s advisor is not aware of the extent or value of his client’s collection, and planning consists of a simple, standard bequest of tangible personal property to the surviving spouse, or the children or other heirs, to divvy up as they agree.

NEXT WEEK, POST 2 OF THIS ARTICLE! START BY READING THIS AND THEN TAKE ACTION.

Published in Probate and Property, Volume 30, Number 2, ©2016 by the American Bar Association.

A case of fractional art interests with art law expert, Diana Wierbicki, of Withers Bergman

JOHN DIZARD, A JOURNALIST AND CONTRIBUTOR TO THE FINANCIAL TIMES, RECENTLY STATED, IN FT’S FEBRUARY 5, 2016 EDITION, THAT THE BUSINESS OF LENDING AGAINST ART HAS NEVER BEEN BETTER. HE DOCUMENTS THE SURGE OF NEW CAPITAL THAT IS TRYING TO GET INTO THE FINANCING OF ART-RELATED PURCHASES AND LOANS. BIG BANKS OFFERS RELATIVELY LOW RATES ON THEIR ART LOANS AND SPECIALIZED LENDERS ARE OFFERING LOANS TO EUROPEAN CLIENTS WHO DO NOT MEET THE CURRENT LENDING STANDARDS OF THE CONTINENT’S BANKS. IN THIS WAY, CASH-SHORT COLLECTORS CAN RAISE MONEY BY BORROWING AGAINST THEIR ART INSTEAD OF SELLING IT AS WE APPROACH A TIME WHEN AUCTION RESULTS ARE BECOMING SIGNIFICANTLY LOWER WITH THE EXCEPTION OF FIRST-TIER OR MUSEUM QUALITY WORKS.

http://www.ft.com/intl/cms/s/0/0d4a50f0-cbff-11e5-a8ef-ea66e967dd44.html#axzz3zWBNew5p

ESTATE PLANNING FOR HIGH NET WORTH INDIVIDUALS, FAMILIES AND FOUNDATIONS WITH STRONG ART HOLDINGS HAS BECOME INCREASINGLY COMPLEX AND SOPHISTICATED AND THE NUANCES AND INTERPRETATIONS OF ART LAW REQUIRE SPECIALIZATION AND EXPERTISE. THE LRFA BLOG IS DELIGHTED TO SHARE AN ARTICLE BY LEGAL EXPERT, DIANA WIERBICKI, ON FRACTIONAL ART INTERESTS THAT WAS PUBLISHED IN WEALTHMANAGEMENT.COM IN SEPTEMBER 2014.

Diana Wierbicki is a New York-based partner at the international law firm Withers Bergman,  where she focuses on art law dealing with purchases, sales, loans, consignments and charitable giving of works of art. Ms. Wierbicki is also a member of the wealth planning practice group and advises high net worth individuals and their families on tax, trust and estate planning matters, as well as on commercial transactions associated with that planning.

 

APPEALS COURT GRANTS SUBSTANTIAL DISCOUNT FOR ART INTERESTS

In Estate of Elkins v. Commissioner, the descendent’s estate gets a $5 million estate tax refund

The U. S. Court of Appeals for the Fifth Circuit reversed the Tax Court’s decision in Estate of Elkins v. Commissioner and increased the discount for the decedent’s fractional art interests, resulting in a $14 million estate tax refund for the decedent’s estate.

The Tax Court had previously rendered an opinion in 2013 granting the Estate of James A. Elkins, Jr. a 10 percent discount from the pro rata fair market value of the decedent’s interests in 64 works of art.  On appeal, the Fifth Circuit disagreed with this nominal percentage and accepted the discounts originally offered at trial by the estate’s expert witnesses, which ranged from 52 percent to 80 percent.  These discounts even exceeded the 44.75 percent discount originally reported on the estate’s return.

Facts

James Elkins and his wife had lived in a community property state.  James survived his wife and died owning a 73 percent interest in 61 works of art and a 50 percent interest in three works of art.  At that time, his children owned the remaining interests in the art.   During James’ life, the art was primarily held in his house or office, and a lease agreement and co-tenants’ agreement with regard to the art existed between him and his children.

When James died in 2006, his children inherited his undivided fractional ownership interests in the art, and his residuary estate passed to a family foundation.  James’ estate tax return applied a 44.75 percent fractional interest discount in valuing James’ art interests, which the Internal Revenue Service denied in its entirety.

Tax Court Ruling

The Tax Court rejected the IRS’ argument that no discount should apply and, instead, valued the decedent’s fractional interests using a hypothetical “willing buyer/willing seller” analysis.  The Tax Court noted that although both parties brought expert witnesses, only the estate introduced evidence as to the appropriate discount amount.  The IRS—committed to its position that the decedent’s interests shouldn’t receive any discount—offered expert testimony that there was no recognized market for the sale of such interests and failed to argue in the alternative for a specific discount value.

The Tax Court was most influenced by the testimony of one of the decedent’s children.  Relying on the daughter’s statement that she would be willing to pay a “fair price” (meaning one determined by an expert) to keep the art in the family, the Tax Court presumed that all of the decedent’s children would ask for little to no discount.

The Tax Court determined that the fractional interests should only receive a minimal valuation discount of 10 percent for estate tax purposes.  As such, the Tax Court rejected the estate’s suggestion that a hypothetical owner of the decedent’s fractional interests, cognizant of the children’s determination to outlast any third party who attempted to force a sale of the interests, would need to sell the art to the children at a sharply discounted value. Without expert testimony from the IRS analyzing the appropriate discount, the court seemingly picked a percentage discount amount out of thin air.

Higher Discounts Warranted

On appeal, the Fifth Circuit affirmed the Tax Court’s holding that fractional-ownership discounts apply to interests in art.  However, the Fifth Circuit found that the Tax Court’s application of a 10 percent nominal discount was a reversible error, given the absence of any evidence or legal arguments supporting such an amount.

The Fifth Circuit found that the Tax Court’s focus on the children as owners of the fractional interests undermined the objectivity of its “willing buyer/willing seller” analysis.  The Fifth Circuit criticized the Tax Court for not giving sufficient weight to factors that would realistically inform a hypothetical buyer’s or seller’s price.

In addition to considering the children’s resolve in maintaining absolute ownership and possession of the art, the Fifth Circuit revisited the testimony of the estate’s expert witnesses.  The Fifth Circuit agreed with the experts that a potential willing buyer of the decedent’s fractional interests would be aware of the family’s financial strength and sophistication, as well as existing restrictions on selling the interests.  Such factors would outweigh the appeal of a guaranteed “fair price,” and lead a buyer to purchase the interests only at a large discount.  Moreover, the Fifth Circuit observed that the so-called “fair price” that the decedent’s daughter was willing to pay would likely be informed by the same experts as in the present case, whose valuations supported much higher discounts.

Widened Range of Discounts

This was a tremendous win for the estate and has drastically widened the range of discounts for fractional interests in art.  This is a dramatic increase from the 5 percent discount for fractional art interests that was granted in Stone v. United States in 2007.  The Fifth Circuit emphasized that the estate’s evidence on discount valuation was the only evidence on that issue because the IRS was unable to introduce any evidence as to an alternate discount valuation, having failed to do so at trial.  It’s therefore unclear where future discounts for art interests will land within the court-established range if the IRS abandons its no discount argument in the future.

– The author acknowledges Sarah Pickering for her assistance with this article.