An artist’s individual work is treated similarly to a business where the art is seen as inventory.Kuzma/Getty Images/iStockphoto
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One of Samantha Sykes’s clients is an internationally acclaimed photographer whose images are featured in Billboard and Vanity Fair magazines and the Toronto International Film Festival. While decades of producing commercial art resulted in an extensive body of work, she says the photographer lacks a plan on how to preserve this art once he passes away.
“He has no partner or children and has a fairly expansive collection,” says Ms. Sykes, senior investment advisor with Sykes Wealth Management at Raymond James Ltd. in Toronto. “As part of his financial plan, we’re figuring out how to value his collection and what ultimately happens to it.”
Malcolm Burrows, head of philanthropic advisory research at Scotia Wealth Management in Toronto, calls the situation of what to do with an artist’s life’s work one of the “great nightmares” for these clients. He recalls one artist fretting that his collection would end up in a dumpster.
The challenge for professionals helping artists is creating an infrastructure for the collection, one that keeps in mind issues such as inventory, cultural and economic value and ultimately, who inherits the pieces.
Artists have a few considerations. The first is structuring the art so it passes to the next generation on a tax-deferred basis. Mr. Burrows says an artist’s individual work is treated similarly to a business in which the art is seen as inventory. However, when the art is sold or donated by family members, the collection is taxable, triggering capital gains or losses. This differs from art collectors, whose art would be taxable immediately upon selling the art.
Some works may become part of public collections, art galleries and museums, depending on the art being deemed culturally significant and accepted by those institutions. Ms. Sykes notes that her photographer client has already loaned out some of his art to various museums. They are working on an estate plan to preserve and donate his collection.
The pros and cons of setting up foundations
Mr. Burrows is seeing more artists set up their own foundations, which allows professionals to help manage the art inventory and iron out goals for specific pieces in the overall collection.
“It’s not about making money on the foundation, as there’s a significant charitable aspect. It’s about making sure that the artist’s life work and legacy get well supported,” he explains. “Most have a low estate value because it’s not a lucrative business, generally … but there’s a high cultural value to the art.”
One approach is establishing an artist foundation as a donor-advised fund (DAF) within Aqueduct Foundation, a registered charity that holds and manages the art. A DAF costs nothing to set up but there’s a minimum donation of $250,000 required, which usually comes in the form of cash and art, Mr. Burrows says.
An artist foundation would receive the art, put together a catalogue resume (a record of all their works to help spread out and determine interest) and hold the art for the public to view.
Ms. Sykes says her photographer client is leaning in this direction for most of his art.
“He sees that it’s wise for him to look at these issues in advance,” she says.
Alternatively, artists could start a private foundation, a stand-alone registered charity. In that scenario, the artist would hire a lawyer to register the charity officially with the Canada Revenue Agency (around a $10,000 fee). The foundation would need to conduct annual general meetings and regular board meetings. Mr. Burrows also notes the artist would pay standard fees for storage, inventory and insurance for protecting the art.
“So, if an artist leaves [the foundation] their life’s work, they can manage the art on an ongoing basis,” he says. “Artists don’t have to rely on either volunteers or other professionals after they’re gone to ensure everything is handled.”
Foundations can also help to avoid rash decisions such as liquidating the artist’s entire collection at once, a move that often destroys the market value and the artist’s reputation. Instead, a more strategic out could be selling off particular works to fund exhibitions, artist catalogues, and even research education about the artist, Mr. Burrows says.
To make sense of how to plan, some artists will put pen to paper, drafting a specific will exclusively for their art, complete with an executor who knows the art industry. In this will, Mr. Burrows says the artist may stipulate their parameters for setting up a foundation.
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