When defining how much your artwork is worth, it is important to know the difference between a valuation and appraisal. A valuation is an estimate of the value of your art collection based on knowledge from reputable sources in the art world. You can get references from gallerists, archivists, curators, auctioneers, or dealers. However, an appraisal is a more formal and widely accepted process of determining the value of an artwork that involves a certificate for solid proof of its value.
Why valuation matters?
There may be more than one reason why a valuation of your artwork is necessary:
- Charitable Gifting and Estate Planning: Valuation is required to determine the type of tax breaks or estate taxes due – as these differ greatly amongst different jurisdictions – when planning the inheritance of your collection.
- Sales: You will need to know the value of your artwork to determine an appropriate asking price if you ever plan on selling it.
- Restoration: If your artwork is damaged and needs repair, knowing the current value will help determine the actual cost of the damage and consider if the restoration cost is worth moving forward with.
- Art Financing: In order to use a piece of artwork as collateral for a loan, the lender would require a professional and recent appraisal of the artwork.
- Insurance: Insurance companies will need a professional appraisal and photos when you purchase insurance coverage for your artwork or when you make a claim.
Choosing the right art appraiser
Art collectors, archivists, curators, and gallerists can provide suggestions for reliable appraisers who possess solid background and experience in the specific area of artwork you have based on their expertise in the type of artwork you collect or a proven track record.
You will need to have all information related to your artwork ready when engaging an appraiser so that he or she has the appropriate provenance document for the valuation. That is why it is so important to document information about your artwork or safekeep relevant records such as invoices and/or catalogue when you acquire it. Artwork archives can often be an effective tool in storing all the relevant information in the cloud and when needed, such information can easily be exported to any device.
Tax and Estate Planning
Often collecting art is more about a collector’s passion and genuine love of an art piece, so any future planning may not have come to his mind until a conversation kicks in. With the growing interest in artwork especially in Hong Kong and China during the past decades as well as the significant value an art piece may carry, we see the importance for any serious art collectors to start thinking about their future choices and decision concerning their art collection. No doubt, art collection forms part of a deceased’s estate and it can potentially be a subject of dispute among family members if no planning is put in place.
If you are considering leaving your art collection to your family members, perhaps you need to start a conversation with them sooner rather than later to establish how your family members feel about your art collection because ultimately your goal is to ensure your art collection is taken care of according to your wishes. If no family member is interested to keep them, then you might want to explore the choice of selling them during your lifetime if you wish to be part of the process so you get to choose the next owner(s) who will look after your art collection. If that it is not your preferred choice since you still want to enjoy them, then you need to make sure that there is an appropriate provision in your will to allow your executor to sell your art collection in a manner that is agreeable to you. Any proceeds after the sale would be included in your estate for estate tax duty purposes if you reside in a jurisdiction where estate tax is applicable.
Another option you may consider if none of your family members would like to safekeep your art collection is to have your art collection to be gifted to an entity to hold them. This will put the entire collection into a more structured vehicle where your family members get to own the interests in the entity according to the portion of entitlement you wish each will have instead of choosing who takes what. The family members would run the entity collectively in enhancing their interests by either leasing the art pieces for generating profits or collecting them with a long-term investment view.
If donating your art collection to a museum or charitable organization seems more attractive, then you should start exploring which museum or charitable organization that you have in mind. It may not be ideal to simply gift your art collection to any museum under your will if you have no prior dealing with them or any knowledge as to what other resources they might have, in maintaining, promoting and exhibiting your art collection for the benefit of a larger audience.
Legal issues related to Matrimonial Law
When an art collecting (or even artist) couple divorces, the artwork can become as contentious as the couple’s priciest assets. That is exceptionally true when one-half of the divorcing couple is a popular artist or a passionate art collector since that person will also add sentimental value to the worth of a specific artwork or collection.
Every jurisdiction has its own unique divorce law, but most countries and territories command a fair distribution of assets between the parties. This essentially means that couples will need to identify the value of all their assets in order to ensure that the total value of their assets will be shared and divided as fair as possible.
This is specifically how things can get complex once you start divorce proceedings. In Hong Kong, each party is required to complete an extensive disclosure form known as Form E to disclose all the assets, income and expenses of the parties. This would cover all the artworks you have made, collected, and sold before and during the marriage. Anything considered valuable has to be disclosed, from the pieces you haven’t sold that remain in a storage, to those that hang in your, or somebody else’s home. If you are a collector, you will have to disclose the sales proceeds obtained from selling artworks so that this can be measured as part of your income. Sometimes a party may argue that the artworks created or collected or any payment received for an artwork before the marriage are pre-marital assets and should be excluded from the matrimonial pot. In Hong Kong, this may not necessarily be true and the Court will look into all the circumstances of the case, including the respective financial needs of the parties to determine the issue. Failure to give full and frank disclosure may result in adverse inference being drawn against you by the Court in the ancillary relief proceedings.
Though collectors typically research a work’s provenance before making a purchase, in a divorce it might be useful to engage in the process all over again. The inability to ascertain the value of artworks and hence the total value of the matrimonial pot could impact the duration of the entire divorce proceedings. On the other hand, it’s an excellent way to ensure neither party is being tricked about the value of an artwork during divorce proceedings. In general, though divorce can be stressful, keeping track of your artworks, along with the rest of your assets, will make the process much easier and make it simpler for any art appraiser to value your art.
Our team at Hugill & Ip has extensive experience in dealing with Wealth and Estate Planning as well as Family Law issues – so kindly get in touch with us to find out how we can help.
This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.