Fine art is an asset class that has been growing in importance among the affluent and is beginning to be a significant part of certain estate plans. One estimate pegged the international art market at €51 billion in 2014, and Canada has seen record prices at auction. Many collectors are contemplating donating their art at death, but the process has its challenges.
The top-of-mind recipients of art are galleries and museums. The holy grail of this process is to receive cultural property status through a gift to a designated institution and certification by the Canadian Cultural Property Export and Review Board (CCPERB). The list of designated institutions includes certain universities, libraries and archives.
Donations of objects deemed to be of “outstanding significance and national importance” are exempt from capital gain. They also may be claimed against 100% of net income, which during life is a huge benefit, but less so at death due to higher contribution limits for estate donations. Designation as cultural property is a lengthy and arduous process, however, with both the art and its value subject to scrutiny.
For a gift by will, it is prudent to negotiate with the intended recipient institution during life, particularly if the intent is to receive a cultural property designation. It is important to remember that institutions have limited resources for display, storage, and restoration. Galleries are cautious about what they accept, and a surprise estate donation may be rejected due to quality, fit or lack of curatorial resources. Galleries may be reluctant to undertake a post-mortem CCPERB application due to the time involved and only CCPERB can validate value or provide a cultural property designation.
Aqueduct Foundation receives gifts by will of art to donor advised funds. While a public foundation is not eligible for designation under the Cultural Property Export and Import Act, the advantage of Aqueduct is tax certainty and the ability to negotiate the ultimate “home” of the art. Tax certainty derives from the ability to provide a tax receipt for an in-kind donation within the 36-month GRE period for the appraised fair market value. Placement of the art may be delegated to the Foundation or a chosen advisor. The art is granted to a qualified institution only after due diligence and negotiations. Depending on the preference of the donor, the art may even end up at registered charities that are not collecting institutions.
We have one art donor who has a “catch and release” philosophy. He has an outstanding collection and has spent many years assembling it, but doesn’t want it to languish in storage at a large public gallery. Instead, he views his art as an asset to be sold at the best possible price by the foundation and funds to be used for other charitable purposes, which include art education. A choice piece will go to a museum, but the rest will be released on the market for other collectors to discover.