Protecting works of art through a trust: A fragmented heritage without a strategy is a heritage that loses value. Managing, protecting, enhancing, and ensuring the unity of an art collection is a crucial moment in the life of an art collection. Whether a collector acquires a painting, a watch, a vintage car, or an NFT, they will always have the need to maintain and increase the value of their collection. This depends not only on the characteristics of the artwork but also on the characteristics of the ownership and custody of the asset. The mode of management plays a significant role because it is necessary for those managing the collections to make the best choices of the moment that do not crystallize ownership but guarantee its growth.

Alessio Frateily

Hatched by Alessio Frateily

Nov 07, 2023

5 min read

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Protecting works of art through a trust: A fragmented heritage without a strategy is a heritage that loses value. Managing, protecting, enhancing, and ensuring the unity of an art collection is a crucial moment in the life of an art collection. Whether a collector acquires a painting, a watch, a vintage car, or an NFT, they will always have the need to maintain and increase the value of their collection. This depends not only on the characteristics of the artwork but also on the characteristics of the ownership and custody of the asset. The mode of management plays a significant role because it is necessary for those managing the collections to make the best choices of the moment that do not crystallize ownership but guarantee its growth.

There are two most suitable vehicles for ensuring the management and preservation of art collections:

  • 1. The Foundation: A foundation is an institute that allows the creation of a heritage aimed at a purpose of public utility, the achievement of which is controlled by the state. The foundation is suitable for conveying and disseminating art, culture, and artworks, provided that a public purpose is attributed to the foundation. Pursuing these public interest goals is now possible through the legislation of the Third Sector Code, which has intervened by simplifying the process and requirements for the establishment of a philanthropic foundation. It is sufficient to have a minimum endowment of €30,000 and a notarial deed of constitution followed by electronic registration in the National Register of the Third Sector (RUNTS) through which the entity will directly acquire legal capacity. A foundation in its philanthropic form allows for significant tax advantages related to the world of the Third Sector.
  • 2. The Trust: The trust is the chosen instrument for the protection of art collections. It is widely used worldwide to protect and guarantee the value of small or large collections, such as the MOMA collection in New York. The trust not only benefits the art collector but also the artist themselves, ensuring the appreciation of their work even after death, especially in cases where they have no heirs or consider them to be uninterested in art. Unlike a foundation, which is dedicated to pursuing a public interest, a trust allows for protection without having to give up private purposes. A trust for artworks can have a long duration, and once it reaches its term, the assets can be transferred to heirs or third parties. The assets in a trust are protected and do not fall within the succession of the collector or the artist who established it. The management of the asset is based on the trust deed written by the collector or the artist. The trustee is responsible for operations such as the free use or rental of the artwork to art galleries, and the income generated can be used to maintain or enrich the collection or be distributed to the beneficiaries of the trust.

What are the tax advantages of a trust? Choosing to place an artwork in a trust means protecting its value, safeguarding it from potential future creditors, and optimizing its tax profile all at once. Transferring the collection to a trust has no tax impact. The assets will not be subject to gift or inheritance tax until the trust ends (which can be several years or even beyond 60). In the case of foreign holding, the settlor will not be required to complete the RW form in their tax return; this compliance will be the responsibility of the trust. For direct taxes, when selling artwork, the trust, operating as a non-commercial entity, will not be subject to VAT, applying the same provisions as individuals but with a regular tax rate of 24%. Like individuals, any capital gains recorded by the trust as a non-commercial entity will not be subject to taxation. For indirect taxation, if the artwork is of recognized historical and artistic interest, it will not be subject to inheritance tax upon the trust's termination. The moment of taxation for gift and inheritance taxes is when the asset is actually transferred to the beneficiaries at the end of the trust.

So when should you choose a trust and when a foundation? The trust offers much more flexibility, which is why internationally renowned art collections are placed in trusts. Trusts provide protection and value preservation without sacrificing private purposes. On the other hand, a foundation is more suitable for conveying and promoting art and culture with a public interest aim. The choice ultimately depends on the specific objectives and preferences of the collector or artist.

In conclusion, protecting art collections involves strategic decisions regarding their management, preservation, and enhancement. Foundations and trusts are two effective vehicles that offer different advantages. While foundations are more focused on pursuing public interest goals, trusts provide flexibility and protection for private purposes. When choosing between the two, it is important to consider the specific objectives and preferences of the collector or artist.

Actionable Advice:

  • 1. Before establishing a trust or foundation for your art collection, consult with legal and financial professionals who specialize in art law and estate planning. They can provide guidance on the most suitable option based on your specific circumstances and goals.
  • 2. Regularly review and update the management and preservation strategies for your art collection. As the art market and legal landscape evolve, it is essential to adapt and ensure the continued value and protection of your assets.
  • 3. Take advantage of the tax benefits offered by trusts or foundations for art collections. Consult with tax experts to maximize these advantages and optimize your financial planning.

By implementing these actionable advice and considering the options of trusts and foundations, art collectors and artists can effectively protect, preserve, and enhance the value of their collections. Whether it's ensuring the unity of a collection or securing the legacy of an artist's work, strategic planning and the right legal frameworks are essential in safeguarding the world of art.

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