Armed with this information, we divided the collection into three parts. The first was called the “core collection” because it consisted of 25 objects worth approximately $35 million. All these objects would be held long-term and sold after the death of the surviving spouse. Sale proceeds were designated to go to charities important to the collectors.
Next, two valuable paintings were set aside to create a gifting currency. More specifically, the paintings were transferred into a single purpose limited liability company (LLC). Sally and John would annually gift shares in this LLC to their three children and seven grandkids. Across the 10 recipients, they would be able to remove $300,000 of value out of their estate each year. The two paintings we picked were easy to value, so the annual process for revaluing LLC shares would be very straightforward.
The remaining 63 objects in the collection were assigned to the “for sale” collection. We added a few valuable objects into the mix to make the “for sale” portfolio more interesting to auction houses. This would enable us to negotiate a better financial deal when sold. This sale would also be timed to allow my client to realize some losses in their venture capital portfolio. By doing so, they would be able to net capital gains on the collection sale with capital losses in their venture capital portfolio, lowering the capital gains taxes they would otherwise pay on the sale of the art.
A few other noteworthy flourishes were embedded in the plan. When the core collection is ultimately sold after both Sally and John have passed, sale proceeds will be distributed in an interesting way. Thirty percent is slated to be donated to their local museum. It’s their way of giving back to an institution they love. The museum is thrilled with the prospect of getting cash rather than art. The remaining 70 percent of sale proceeds will be put into a donor-advised fund. Their three adult children will then be tasked with distributing this money over 10 years to a shortlist of non-arts-related charities.
Sally and John are also downsizing. They will keep their New York City pied-à-terre, but are selling their other homes and plan to make Florida their primary residence. When this happens, two valuable paintings in the New York apartment will move to Florida so their value will not be subject to New York state estate taxes. But rather than looking at blank walls in the future, replicas are being created so the wonderful ambiance of the New York apartment is maintained. Technology now makes it possible to create replicas that the naked eye can’t distinguish from the original.
The Florida home will also be outfitted with state-of-the-art sensors so that light levels, humidity, and temperature can be monitored remotely from their iPhones. I also worked with the couple to rent short-term storage space they can elect to utilize on a moment’s notice so that when dangerous storms approach the Florida coast, they can be assured of being able to move artworks into a space on a high floor of a secure art storage facility.
Sally and John now have a plan for their collection that is specifically tailored to their personal goals for legacy and philanthropy. As you might imagine, cookie-cutter solutions don’t exist. But I hope this case brings alive what collectors can do to ensure that a collection passionately assembled over time is thoughtfully positioned for the future.