There are several reasons collectors might loan a work of art to a cultural institution. They may wish to share a cherished pieced with the public who would otherwise not have an opportunity to view it. Museum exhibition can enhance the provenance and value of privately owned work. Likewise, a museum may provide scholarly details about a collection. Often, collections or pieces are exhibited to gain a bit of notoriety and therefore add value before a sale. Increasingly, works are being exhibited to reap significant tax savings.
In 2013, Elaine Wynn, the ex-wife of Las Vegas casino owner Stephen A. Wynn purchased Three Studies of Lucian Freud (1969) by Francis Bacon $142.4 million at auction in New York. Although Ms. Wynn is a resident of Nevada, the piece made a surprising post-auction debut at the Portland Art Museum in Oregon. Why? In doing so, the Wynn estate avoided nearly$11M in use taxes that Nevada would have levied.
Usually, artwork is subject to a use tax in the state where it arrives after it is shipped from its purchase location, but five states—Alaska, Delaware, Montana, New Hampshire, and Oregon—do not have a use tax. After a term of exhibition in one of these states, it can be shipped home free from tax as it has already been “used” in another state. This clever tactic allows art buyers, who sometimes pay tens of millions for artwork, to relocate the artwork to their private residence tax-free.
Whatever the reason your Principal may choose to loan a priceless work to a museum, as part of your due diligence as the Estate Manager, you should research and collect information on the transaction and create a report for your employer. Our rep at Chubbs recommends the following checklist:
1) Museum Accreditation Standards Be sure you are lending to a reputable, vetted, fully insured museum with a good reputation for art management. Also check that the museum is in good financial health and that staff turnover is minimal. A good resource is The American Alliance of Museums http://www.aam-us.org/resources/assessment-programs/accreditation
2) Fine Art Insurance The borrowing museum is responsible for all aspects of the loan and associated costs, including insurance. The museum should provide you with “wall-to-wall” insurance from the time the work is taken from their “wall,” during transit, throughout the exhibition, and until the work is returned to you. Ask your insurance agent to review the museum’s insurance policy to evaluate the financial strength of the insurance carrier to determine whether you should maintain your own insurance, in addition to the museum policy.
3) Appraisal You should have a current, independent appraisal to establish the proper value of the work at the time of the loan. This also reflects the kind of coverage you secure for the works during and after the loan. Your insurer may be able to assist you in identifying a relevant and qualified appraiser.
4) Title and Authenticity If there are any concerns regarding authenticity or clear title to the fine art being loaned out, recommend that you consult with a provenance researcher beforehand to ensure there are no issues.
5) Packing and Shipping Consult with the museum conservator regarding protocols for packing and shipping. Obtain details about each leg of the trip and request a courier to accompany fragile items while in transit. A condition report is a must before lending, following each transit, after the loan, and upon return to the estate.
6) Museum Security Request a facility report from the museum registrar to evaluate the security and protection at the museum or any storage facility or venue where the work will be shown.
7) Display Conditions Inquire about climate controls and fire prevention methods. Request special display cases and/ or specify display location for protection from the climate, fire suppression systems, or public as required.
8) Labeling and Identification Be sure that the works are clearly marked with irremovable identifiers. For privacy and future security issues, you might suggest that your Principal consider anonymous acknowledgment of the loan versus attribution of ownership. Consult with your security team.
9) Documentation Be sure to photograph in high quality detail every inch of the work including whole images and quadrant details, front and back. Make note of pre-existing issues or flaws and identifying marks.
10) Loan Agreement Have the loan agreement reviewed by the Principal’s attorney and insurance agent to be sure that everything has been covered.
Currently serving the sports and entertainment industry working on the east coast, Kimberly’s focus is expert management of ‘on-location’ and transitional experiences for these high profile individuals. Working with Production Coordinators, Estate Managers, Agents, and Personal Assistants, she strives to make the relocation process, whether long term or short term, as painless as possible.
For those who chose to add a property to their portfolio, Kimberly serve as an owner’s representative in the design and renovation process and then can map out a successful management plan and put in place experienced staff to facilitate the new systems. Recent projects include a significant portfolio of historic and newly constricted estate properties ranging from 6,000 to 33,000 square feet, often with multiple support structures and extensive grounds.
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