Hippocrates wrote, “vita brevis, ars longa.” Translated, this means “life is short, art is long.” It is a common reference to how time limits life and how art may prolong those limits. In an article that explores what motivates people to make charitable gifts, one gift planner explained that “[s]ome donors are motivated to make a gift that will last forever.” (Alexandra P. Brovey, My Client, a Donor? TRUSTS & ESTATES: THE WEALTH MANAGEMENT.COM JOURNAL FOR ESTATE-PLANNING PROFESSIONALS, October 2013, at 19, 20.)
Every month, a work of art graces the cover of Trusts & Estates Journal. Last year’s October cover featured a work that sold at a Fine Art Auction in Miami in April 2013, a work by Jean Gabriel Domergue, who gained fame as the unofficial painter of “the Parisian lady.” (David H. Lenok, On the Cover, TRUSTS & ESTATES: THE WEALTH MANAGEMENT.COM JOURNAL FOR ESTATE-PLANNING PROFESSIONALS, October 2013 at 4.)
In the 1800’s, Detroit was called the Paris of the Midwest, and today, the preservation of the Detroit Institute of Arts (“DIA”) makes news headlines because of the vision of Kevyn Orr, Detroit’s state-appointed emergency manager, to monetize city-owned works of art in order to secure city employee retirement benefits.
Last June, however, Michigan’s Attorney General announced that the “art collection of the [DIA] is held by the City of Detroit in charitable trust for the people of Michigan, and no piece in the collection may thus be sold, conveyed, or transferred to satisfy city debts or obligations.” Recently, a group of American foundations announced they plan funding assistance to the DIA to preserve the collection, valued by Christie’s auction house at somewhere between $452 and $866 million.
So, what exactly must be taken into account when an estate plan includes gifts of art? Giving art requires considerations of who gives, who receives, and who sees. Furthermore, tax laws must be taken into account. Donors of art may be eligible for income tax charitable deductions for contributed works. The deduction is determined by the legal status of the organization that receives the work, how the contributed property will be used by the recipient organization, and who created the contributed work.
Art donors may be not just collectors, but also the artists themselves. Art is considered ordinary income property where the art was created by the donor. Where a collector is the donor, the art work is also ordinary income property if it is received as a gift from the artist, owned for less than a year after it was received, or held in inventory by an art dealer. However, most works of art are considered capital gain property. And the Internal Revenue Code (“the Code”) treats donated capital gain property more favorably than ordinary income property.
The coalition of foundations pledge of $330 million to save the DIA might have the effect of transforming the museum into a private foundation instead of a public charity. The Internal Revenue Service (“IRS”) explains that private foundations, in contrast to public charities, “typically have a single major source of funding. . . gifts from one family or corporation rather than funding from many sources. . .” However, if the primary activity of the DIA remains unchanged, it may still be a public charity. The IRS treats a public charity different from a private operating foundation.
An art donor may be able to deduct as much as 50% of his or her adjusted gross income for the charitable contribution on the non-cash asset, depending on the legal status of the recipient organization. But it is not only the tax deduction that motivates a donor of art. Therefore, it is also important that art donors learn about how museums operate.
Gifts of art, once donated, are governed by museum policy. Commonly, art donors complain when donated works end up in museum storage. For example, a recent ten-city national tour, with one stop at the Everson Museum in Syracuse, New York, The Art of Video Games is one of the first of its kind, exploring the art, design and technology of gaming systems. The Everson’s permanent collection of renowned ceramics, based around works by Syracuse’s own Adelaide Alsop Robineau (1865-1929) and contemporary artist David MacDonald, play second fiddle in the lower levels of the museum while a new generation of museum goers get a chance to play Pac-Man, now an ancient artifact in the narrative art of video games. Tastes change, as do curators, art supporters, and museum goers.
Furthermore, one Miami-Herald reporter lamented, seven years ago, the loss or theft of dozens of artworks that went missing from Miami-Dade’s Art in Public Places program. According to county officials, the program was hindered by “inadequate funding, hurricanes, computer failures and insufficient staff.” More recently, the Smithsonian’s Arts and Industries Building announced that even after a $55 million renovation, the museum will not reopen because operation costs exceed funding sources. A need for funding sources remains a prevailing concern for many museums, arts organizations, and programs. But, this concern may simply be another exciting opportunity for charitable giving in the arts, which can play an important role in an estate plan.
If you, or someone you know, would like to create an estate plan that includes donations of art work, the experienced estate planning attorneys at Chepenik Trushin LLP can assist you in creating an estate plan that takes into account the many complex considerations involved. Please do not hesitate to contact us for an initial consultation.