Estate Planning / Inheritance Tax / News

What to consider when leaving your art collection

Some assets in your estate, including art collections, might need to be carefully considered as you make plans for passing them on. And it will certainly be important to consider the tax and personal issues which might arise. Steve Wright, our Estates Director, shares some suggestions about what you might need to consider when leaving art to your heirs.

Leaving an art collection, particularly if it’s large or valuable, can prove complex, both for tax reasons and because of the emotional legacy it might carry. Making sure you have specific plans for your artwork is important to help ensure that your collection is properly shared and enjoyed. You may want to donate your art to the nation or specify particular pieces are passed to certain members of your family. If you haven’t made clear decisions, it will be up to your Executors to decide how your art collection is dealt with.

If your family has a good appreciation and understanding of your art you may feel comfortable with them handling the practicalities of moving and storing it after your death. If not, you may need to put in place plans to ensure that your art is secured, or stored safely, and moved appropriately by experts as and when it needs to be transported. Think about insurance too and whether your artwork will be covered after your death.

Failing to think through these steps, could leave your collection at risk. Alternatively, your family may feel more comfortable working with an artistic Executor who can handle this aspect of your estate.

The question of tax

An art collection forms part of your estate and will need to be professionally valued. It could attract Inheritance Tax (IHT) at 40%, so you may need to carefully consider the impact on your beneficiaries. They may face a hefty tax bill which would need to be settled from other funds or liquid assets out of your estate. Alternatively, the art could be sold to cover the tax bill, or be gifted to the nation. If this is the case, there is a useful tool which can come into play – called the Acceptance in Lieu (AIL) scheme. This allows IHT to be paid by transferring objects, such as art.

The emotional legacy

One of the main challenges when leaving physical possessions is the conflict that can arise. If you haven’t left a letter of wishes, or specific guidance in your Will, about how you’d like your collection to be divided, problems could occur. In this situation it might be that your Executors will have to step in and negotiate, and think creatively about dividing the artworks up, perhaps by asking your beneficiaries to list which pieces they would like to keep and hoping that they can honour any preferences fairly. Alternatively, it’s possible for artwork to be ‘traded’ between beneficiaries, perhaps with those who’d prefer to receive cash inheriting a greater share of liquid assets and leaving the artwork to others who would prefer that option.

Otherwise, it might be that your art collection would need to be sold – either fully or in part – and the proceeds then distributed accordingly.

Thinking about future generations

There are, of course, also other options. If you’d prefer to leave your art collection to future generations there is the option to put it in trust. Setting up a Discretionary Trust would leave your art collection in the care of trustees, with no single beneficiary having a right to it. In this situation it may even be possible to generate income for the trust, for example, by loaning pieces to galleries and museums. Pieces from the collection can then be appointed from the trust to specific beneficiaries when the trustees decide, and a letter of wishes can help carry out your preferences for how you’d like the artwork shared from the trust. Again, IHT needs to be carefully considered and planned for, as there are likely to be both 10-year anniversary charges and exit charges to think about.

If you do have an art collection to factor into your estate plans it’s important to give some thought to how it might impact your beneficiaries after your death, as well as the tax implications of leaving any valuable pieces. Discussing your situation with a professional can help shape your thoughts and get the right plans in place.

To discuss any aspect of your estate plans, please contact your nearest office.