Financial Tips for Building an Art Collection

Art is intensely personal, for both the artists who create it and the individuals who enjoy it. Art can bring us joy, make us think and liven up our homes. And for those who are enthusiastic collectors, art can become an important financial asset and component of their overall wealth.

When you think about the financial considerations surrounding art collections, estate planning may come to mind. Determining what should happen to the artwork you own after you’re gone is a critical element of a comprehensive financial plan for collectors. However, your plan should also take into account the financial aspects of building and maintaining your collection.

Key Questions to Consider

• How does your art collection fit into your long-term personal and financial goals? Do you want to build a collection solely for your own enjoyment? Or do you view your collection as an investment that might appreciate in value and yield returns when they are sold? (The answer could be a bit of both.)
• How much can you comfortably spend on new pieces of art? This should include not only an artwork’s price tag, but also the expenses involved in transporting, displaying or storing, and maintaining it. Appraisal fees, additional insurance and art restoration and cleaning services are just a few of the related expenses that you’ll want to research and incorporate into your budget.
• After investing in your art collection, will you have enough liquid assets available for an emergency savings fund in case you need to access cash quickly? Art is not a liquid asset, although you may be able to use your collection as collateral to obtain a loan. It takes time to negotiate deals for art purchases, and rushing a sale might result in you getting less money for a piece than it’s worth.

Create a Catalogue

It’s important to have a solid understanding of what you’re buying. Thoroughly research each piece and the artist who created it. Has the artist or the artwork been featured in reputable galleries or exhibited in museums? How has the market valued their work? What kind of sales have they generated via auction houses or third-party providers?

Each piece that you purchase should be carefully catalogued, and its value periodically reviewed and updated, so that you have all the information you need to make smart decisions if you decide to sell a piece.

Develop an Estate Plan

The catalogue will also inform your estate plan. Your options for what to do with your art may depend in part on the size and value of your collection, but most people generally have three options.

First, you can give your collection to noncharitable beneficiaries, such as your children or grandchildren. But make sure to ask them if they want all or part of your collection first (and try not to take it personally if they say no). Some collectors mistakenly assume that their heirs will want to inherit their art, leaving them with pieces they don’t like and unexpected expenses — not to mention potential tax implications — instead of a treasured legacy.

Another option is to donate your collection to a charitable beneficiary, such as a museum. There may be some tax advantages to taking this route: either an income tax deduction, if the collection is gifted before your death, or an estate tax deduction. If you choose this option, you may want to negotiate an agreement with the beneficiary outlining how your collection will be displayed and maintained.

Option three is to sell the collection. Note that it can be expensive to sell art because the long-term capital gains tax rate for artwork and collectibles is higher than for other assets. You may also have to pay for dealer commissions, insurance and shipping costs, among other expenses.

A CERTIFIED FINANCIAL PLANNER™ professional can help you think through these options and develop a holistic financial plan that also helps you build and maintain your collection. With a sound financial plan, you can create an art collection you love with the confidence that you can meet your short- and long-term goals. That way, you can enjoy your collection today and look forward to sharing it with others in the future.