Citi Private Bank offers a deep understanding of the needs of art collectors

Today’s global art market is in a vibrant state. There is more interest than ever before in collecting artwork, thanks in large part to the involvement of new buyers from emerging nations and regions like China and the Middle East.

According to the European Fine Art Foundation, worldwide sales of art in 2014 reached a new all-time peak of $51.1 billion. In May of this year, Pablo Picasso’s Women of Algiers fetched $179.4 million, the highest-ever price achieved at auction.

 With record sums being invested in art, there is a growing need for buyers to consider their collections within the context of their overall wealth plan. Determining exactly how to own artwork is becoming as important as the decision about which artworks to buy. To find out how some of the wealthiest buyers of art are being advised, Arabian Knight approached Paul James, Global Head of Citi Trust, Citi Private Bank’s own wealth-planning organisation.

“Collecting art is a passion that can enrich life and bring a great deal of joy,” says James. “Many collectors want to share that joy with others by creating an art legacy, be it privately for their family or publicly for galleries and museums. To do this effectively, they need to think ahead and have a plan in place. What we do is to understand their needs and then build a structure to hold their art in a way that will best create the legacy that they want to leave.”

A trust is a legal arrangement where someone transfers property into the name of an individual or institution, known as the trustee. The trustee then holds and administers that property on terms set by the person who transferred the property, either for the benefit of that person or for others named by that person, or for both. The trustee has a duty to act in the best interests of those beneficiaries, whose rights are protected in law.

“Putting your artwork into a trust can be a good way of ensuring that your legacy endures after your lifetime and that its disposition conforms with your intentions,” continues James. “They can offer numerous other advantages too, including potential tax efficiencies, privacy, and avoiding unnecessary management burdens for the beneficiaries of the trust.”  

“For example, you may want your collection to remain intact not just for your immediate heirs to enjoy but also for subsequent generations. Another possibility is that you want certain pieces to go to certain members of your family. By enshrining these wishes when your trust is set up, you can rest assured that they will be followed.”

James points out that trusts also offer an effective way for establishing or continuing an art legacy for the greater good. “Many collectors want their artwork to be on display for the general public to enjoy. A trust structure can gift the collection or pieces to a museum and see that they are always administered and displayed in the way that you envisaged.”

Holding art through a trust can also play an important role when it comes to tax. Depending on where the owner resides, artwork can attract gift, estate, and other transfer taxes. If a collection appreciates substantially over time, these potential tax liabilities can be significant.

“Another issue here is liquidity,” he continues. “Art is fairly illiquid as an asset: it can take time to sell artwork for a suitable price. But some countries demand payment of estate taxes within a fixed timeframe, which could force your heirs into selling the art unless they have the funds available to meet the tax bill. Putting the art into certain trust structures can take it out of your taxable estate, avoiding estate taxes and these sorts of liquidity issues.”

For art collectors with privacy concerns, a trust can make particular sense. Trust agreements are not publicly recorded nor are trust assets subject to probate. As such, artwork held in trust can be transferred to beneficiaries without public disclosure. “The added layer of privacy from a trust is certainly an important consideration for some clients with valuable collections and personal security concerns,” says James.

Just as trusts can shield the beneficiaries from unwanted publicity, they can also protect collections from legal challenges. “Art collections can be targeted by creditors, potential ex-spouses, business partners, disgruntled relatives and others,” says James. “So long as the assets are legitimately placed in trust, then the structure can shelter them from challenges.”

Artwork often requires significant care and maintenance, which tends to demand time and expertise to provide. “Trustees can play a valuable part in seeing that your artwork is properly looked after and insured,” he says. “Not only can this relieve you of the task during your lifetime, but also spare your family the burden thereafter.”

“We at Citi Trust have been holding assets on behalf of wealthy individuals for almost two centuries,” comments James. “Citi Private Bank was also the first private bank to establish its own art advisory business more than thirty-five years ago. So we have a deep understanding both of trusts and of the needs of art collectors.

“We act as trustees of both special-purpose trusts – which hold art as a sole investment – and also of traditional trusts where art is held alongside other assets. In all cases, though, our aim is to hold your art in a way that matches your particular needs and desired legacy.”