Hiring an Art Advisor for Estate Planning

The first piece of work is almost always an inventory, because every later decision depends on it. An estate plan that refers to "the art collection" without a reliable list invites disputes, delays and valuation problems.

Ownership deserves particular attention. Works may have been bought by one spouse, by both, by a company or by a trust, and the paperwork does not always match the family's assumptions. The advisor cannot resolve ownership questions, but can surface them early so the lawyer can.

The inventory also needs to stay alive. Estate plans are revised over years, and a list prepared once and left alone quickly misses new purchases, sales, gifts and moves. It should be held in a format the lawyer, appraiser and insurer can all use, with one person responsible for keeping it current.

A working inventory for estate purposes should record:

• Artist, title, date, medium, dimensions and any edition details
• Photographs of the front, reverse, labels and signatures
• Invoices, provenance documents and certificates, with gaps noted
• Condition and any past restoration
• Location, including works on loan or in storage
• The person or entity that holds title
• Current insurance values and the date they were set

An advisor organises the collection and the information about it. A valuation used on a US tax return is a different exercise, and for significant works it generally needs to come from an independent, credentialed appraiser.

For charitable gifts, IRS Publication 561 sets out what counts as a qualified appraiser and what a qualified appraisal must contain. In broad terms the appraiser needs relevant education and experience in valuing the type of property, must regularly prepare appraisals for pay, and must not be a party with an interest in the transaction. Estate and gift valuations have their own requirements. The details are specific and change from time to time, so the appraiser and tax professional should confirm them for each case.

Some advisors are also credentialed appraisers, but combining the roles on one collection can undermine the appraisal's independence, particularly where the advisor helped acquire the works. Keeping them separate is usually cleaner. Professional bodies such as the American Society of Appraisers accredit appraisers against education, testing and ethics requirements, which gives collectors a way to check credentials.

It also helps to be clear which value is being produced. Tax valuations use fair market value as the IRS defines it, which is not the same figure as an insurance replacement value. Treating one as the other creates problems in both directions.

For significant works of art reported on US returns, the IRS has specialist capacity to review values. Its Art Appraisal Services unit and the Art Advisory Panel, a group of outside experts, evaluate appraisals submitted in support of values claimed for art in income, estate and gift tax matters. In some circumstances taxpayers can also request a Statement of Value for a high-value work before filing, subject to a fee and eligibility rules the IRS sets.

The practical point is that a weak appraisal is a liability. A valuation built on thin documentation is more exposed to challenge, and challenges take time and money. The advisor's contribution is to hand the appraiser a complete file, including provenance, exhibition and publication history, condition reports and any scholarly opinions, so the valuation rests on the best available evidence.

Timing matters as well. Tax valuations are generally tied to a particular date set by the rules, such as the date of a gift or of death, and markets move. An appraisal prepared for one purpose and date should not be recycled for another without the appraiser's and tax professional's agreement.

Tax outcomes depend on the structure, the jurisdiction and the facts, and only a qualified tax professional should advise on them.

The advisor works best as the person who holds the art information and keeps it consistent across the team. Lawyers and tax professionals make the structural decisions; the advisor tells them what is practically possible for each work.

That usually means setting out options work by work: keep within the family, leave as a specific bequest, give to an institution, sell during the collector's lifetime, or hold for a later decision. The advisor can speak to the practical side of each, such as whether an institution is likely to accept a work, what a sale would involve and how long it might take, and how works might be divided fairly among heirs with different interests.

When hiring for this role, a few questions separate the suitable from the merely enthusiastic:

• Have you worked alongside estate lawyers and tax professionals before?
• Are you also an appraiser, and if so, will you step aside from valuing this collection?
• Is any part of your fee contingent on works being sold?
• Who will own the inventory and records you create?
• How will you keep the information current as the plan changes?