Investment Art as an Asset

September 23, 2015 Suzana Popovic-Montag Estate Planning, Executors and Trustees Tags: , , , , , 2 Comments

When we think of assets, items such as real property, investments, bank accounts, and even jewellery and vehicles are what typically come to mind. Aside from cases where a client has an obviously valuable collection or rare painting, we may not immediately think of art as an asset. However, this may be changing as studies show that investment art is quickly becoming one of the fastest growing and dynamic markets in North America.

According to The Capgemini World Wealth Report of 2013, fine art made up 16.9% of high net worth individuals’ investments of passion, not far behind jewellery and watches. It is no longer uncommon to hear of art being sold in Canada for hundreds of thousands or even millions of dollars at high-end auction houses such as Sotheby’s. More than ever, art is being seen as providing a good source of return by investors. As the report points out, a well chosen piece of art can not only act as a hedge against inflation, but it also has the potential to outperform over the long term.

As a result, when dealing with estate assets where art is involved, it is important that the Estate Trustee manage investment art with the same level of care and attention that they would any other traditional asset. This may involve ongoing maintenance or ensuring proper insurance coverage is in place to protect against theft or damage. Together with obtaining a formal appraisal, these steps can help protect the Estate Trustee against liability while realizing the best possible return on the investment for the beneficiaries.

Obtaining an appraisal when administering estate assets that include investment art and in estate planning where art is to make up a significant portion of the estate, can be invaluable. For a testator, the formal appraisal can be of great assistance in determining the true value of an art asset. This will allow them to make a more informed decision as to the division of their assets. Appraisals are also a useful means for the Estate Trustee to avoid unpleasant surprises where the fair market value is later discovered to be significantly higher than the sale price, resulting in unanticipated taxes.

Thank you for reading.

Suzana Popovic-Montag

2 Comments

  1. Queenie 4 years Reply

    Suzana, I must point out that Canadian Pension Funds have been investing in art for many years now, particularly in UK.

    • Hull & Hull LLP 4 years Reply

      Thank you for your comment, Queenie. The Canada Pension Plan Investment Board holds a diverse portfolio of investment assets (http://www.cppib.com/en/how-we-invest.html). That this organization and others may consider investing in art speaks to the potential for high return and the ability to manage the related risk when investing in artwork. When creating an estate plan, artists and art collectors should remember that, as with more traditional investment options, there is potential for a significant increase in the value of art over time.

      Suzana Popovic-Montag

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