The biggest intergenerational wealth transfer in history is already underway, with baby boomers handing down an estimated $68 trillion over the next 25 years, according to research firm Cerulli Associates. The trickiest part of this shift may not involve stocks, bonds or cash, but something hanging on a wall.
Educating heirs about art worries 58 percent of collectors in the survey, while 57 percent fret over the tax implications.
“I do see trends where more collectors are involving their families into the art-buying process,” said Kipton Cronkite, a curator and advisor who divides his time between Los Angeles and New York.
That means getting the younger generation to get up to speed on fine art, a process akin to transforming Cockney flower girl Eliza Doolittle into the toast of society in “My Fair Lady.” Crash courses on art history, tours of top museums, and mix-and-mingles at popular events like Miami’s Art Basel can all be on the itinerary.
Of course, all the art education in the world will not solve the central question: Do you have a vision that you want your heirs to carry out? Or will you risk giving them total control of your collection?
That is why Daniel Lebensohn, a 47-year-old real estate entrepreneur, has already taken his two young daughters to New York to tour the iconic Metropolitan Museum of Art, and to Miami to see the famous Wynwood street murals. He has introduced them to artists from whom he has commissioned pieces.
“I believe that the most significant thing a collector can do is empower the next generation, not look to control it,” Lebensohn said.
So what do art collectors need to keep in mind, when passing on their beloved works? A few pointers:
1. Outline a plan.
If you have a vision for your collection, you need to put it in writing. Some high-end collectors end up creating their own museums, like the Rubell Family Collection in Miami.
If you are divvying it up among heirs, explain why “one person gets this piece and another gets that piece,” said Liz Jacovino, a Connecticut wealth strategist with RBC Wealth Management. Otherwise, you may invite family squabbles that often result from the reading of wills.
You may want to discuss your thoughts with your heirs because the truth is, they may not want a certain piece of art, or any at all. Often their primary concern is “liquidity,” Jacovino said, as in “just the cash, please.”
2. Think about early gifting.
The 2019 lifetime estate-tax exemption is $11.4 million, scheduled to sunset back to $5 million in 2025. So bequeathing high-priced artwork after you pass away could come to bite your heirs later on.
Gift it now into a trust, and only the current value counts against that estate-tax figure. So if a $100,000 painting climbs to $5 million in value, only the $100,000 will count against lifetime limits.
3. Appoint an adviser.
Most high-end collectors already have art consultants who can also serve the next generation in that capacity.
“Ideally collectors can leave guidance for executors, on who would be a good advisor to help oversee the collection,” said Jacovino. “That way, the next generation can start to learn about what they have just inherited.”
4. Give them some latitude.
As much as you love art, your kids or grandkids may not share the same passion. So while you can certainly try to spark their interest, there are no guarantees.
“Telling them exactly what they should do is a failing formula,” advised Daniel Lebensohn. His hope for his daughters is that they keep the pieces most meaningful to them, and find good homes for the rest.