The key issues facing sophisticated art collectors who seek to establish fiduciary structures – such as trusts and
foundations – for the long-term protection and management of family art collections.
A new generation of wealth is emerging, for which art is increasingly becoming an important component of their overall
tax and estate planning, to put under the care of trust and estate practitioners. A growing number of wealthy families
are art lovers, own collections or actively buy and sell in the art market. A recent report by Deloitte Luxembourg and
ArtTactic suggests 76 per cent of those surveyed acquired art and collectibles from an investment viewpoint, up from
53 per cent in 2012.
Globalization is driving demand for financial innovation around art assets. Today, a family art collection requires
the same strategic planning as other investments and, with the help of skilled advice, can become an effective working
asset, requiring the same standards of asset protection, succession planning and management as with other family wealth.
Planning how to transfer a family collection to the next generation can be one of the most critical aspects of building
and maintaining a successful art succession plan.
Collectors need to consider their art as part of their overall financial and estate plans, especially in relation to
other assets, such as real estate or investments. And, in the light of potential tax and other financial liabilities,
deciding on the best strategy early is critical.
Often, the family’s overall financial needs may help to determine the specific vehicle chosen to transfer all or part
of a collection from one generation to another. Questions concerning whether children will have the organizational and
financial resources to care for a collection and whether there will be sufficient wealth to bequeath an inheritance
outside of the collection itself may have to be worked out. It is also essential to put in place a structure to ensure
sound future governance. This will avoid potential family disputes, including questions as which family members will
enjoy certain pieces of art after the death of the collector.
Regardless of whether the children have an interest in a family collection, decisions about any disposal can be emotional.
One key to making sure a collection does not damage family harmony is to look for creative ways to include family members
in the decision-making process. A suitable governance structure, including a shared family vision, can be constructed and
embedded into the chosen fiduciary structure.
Art ownership through a fiduciary structure can offer significant advantages over direct ownership, in terms of
preservation of wealth generally and in particular in relation to art collections. The wide range of fiduciary structures
available and can be tailored to the needs of each particular family and their collections.
In the short-term, the simplicity of direct art ownership may have a number of advantages – notably the absence of trustee
fees. However, there are a number of long-term issues that collectors should consider, where trust structures can be of
- Is the collection to be kept intact after the death of the owner? Can the owner ensure that only certain family members
benefit from specific works?
- Are there any forced heirship concerns in the country where the collector resides? If so, art works might need to be
sold upon death to satisfy fractional shares of heirs.
- Is the artwork protected from divorce or potential family disputes?
- Is the artwork protected against unwarranted claims e.g. hostile third parties?
- Possible estate / death taxes – which may require a “fire sale” of the artwork.
- Lifetime taxes e.g. capital gains on sale of artwork.
- Can any philanthropic / charitable endeavors with the artwork be continued after the owner’s death?
- Does direct art ownership cause concerns around collector visibility and/or security – for example high-profile
individuals and families?
The use of fiduciary structures can assist collectors with some or all of these issues. It is essential to ensure that
objectives for the trust are fully discussed at the outset with collectors. Fiduciary structures may be difficult and
costly to unwind at a later stage, particularly if there has been any tax planning involved.
Types of fiduciary structure
The strong rise in art prices in recent years has caused many trustees to re-evaluate the best type of trust or
fiduciary structure in which family art collections should be held. Art is a challenging asset on a number of levels,
requiring careful planning at the outset, and significant ongoing care and maintenance. Historically, works of art
and other ‘treasure’ assets would likely be held in a standard discretionary trust structure, forming a relatively
small proportion of overall trust assets – held alongside more conventional classes such as marketable securities
and real estate. However, with trustees having duties under trust law to act prudently by diversifying assets and
preserving capital then owning generally illiquid – and possibly increasingly valuable – works of art through
conventional structures poses increased and unwarranted risk to the trustee. At the opposite end, there is also the
danger that particular artists and/or works themselves might simply fall out of favor with the art market, thus
diminishing their value.
Also, fiduciaries need to consider the cost of ongoing collection care – for example, restorers. Potential family
disputes concerning certain art pieces are a possibility e.g. should the work continue to be held, or perhaps sold
and funds distributed to the trust beneficiaries? Family members may have differing views on certain art pieces,
leaving the trustee in a difficult situation.
Fiduciary structures have evolved significantly in the past 15 years to allow higher-risk assets to be held with
reduced risk to professional fiduciaries. Subject to professional advice, family members, or their family offices,
can retain certain investment powers when it comes to choosing which works of art are bought, sold or held by the
The types of structure most appropriate for dedicated art collections now include:
Reserved powers trusts
This is where the trustee retains legal ownership of the artwork in the trust, but the donor is given power to select
and manage the artwork – e.g. deciding when certain works should be sold. Care must be taken to ensure that the extent
of the powers retained by the donor will not cause legal and taxation issues in their own country of residence e.g.
risk of “sham” or co-trusteeship.
Private trust company (PTC)
The donor can form his/her own, exclusive, trust company to administer the family trusts, supported by a professional
trust company. The PTC will be incorporated and administered in an international finance centre. Typically, the donor
along with certain family members and professional advisors will constitute the board of directors of a PTC, along
with a professional fiduciary company, which will add its expertise and undertake the day-to-day administration,
accounting and corporate secretarial matters.
The PTC will in turn act as the trustee to various family trusts, which may hold higher-risk assets according to the
family’s risk tolerance, which will be well-known to most board members.
As the PTC will have its own shares, then for succession planning purposes, these will often be held by a purpose
trust, where the sole intention (‘purpose’) will be to hold the shares. As there are no beneficiaries of the purpose
trust, then for accountability reasons an independent “enforcer” will be appointed – to oversee the trustee.
Private trust foundation (PTF)
This is very similar to a PTC, except that the foundation itself (rather than a company) will act as trustee to the
various family trusts. This structure is simpler, as the “orphan” nature of the foundation means no shares are issued
(compared to a PTC). Some jurisdictions will require a professional fiduciary to be one of the councilors. As the
foundation will have no beneficiaries – and its purpose will only be to act as trustee, then an independent “guardian”
will need to be appointed (similar to the “enforcer” role, to ensure the PTF fulfils its purpose).
A foundation is quasi-corporate in nature, and may appeal particularly to clients from civil law jurisdiction, where
the trust concept is not as well known or understood. As with a PTC, the client, the family members, advisors and a
professional fiduciary can be appointed as councillors to manage all the affairs of the foundation. Foundations can
own higher-risk assets – as like a company, the foundation enjoys separate legal personality and will own assets itself.
Purpose trusts / Hybrid trusts
A purpose trust has no beneficiaries, but instead one or more “purposes” - such as holding designated works of art,
or for a philanthropic mission. These trusts can be established to last into perpetuity and are particularly useful
for keeping collections together for enjoyment by future generations. As the purpose of the trust is to hold the
artwork and nothing else, the trustee cannot be held liable for non-diversification of assets. These purposes can also
be combined with a physical class of beneficiaries to create a “hybrid” trust, where family members can benefit from
the trust e.g. to enjoy the artwork.
Use of SPVs
Whichever type of structure is chosen, one advisory point is to consider holding the artwork itself in one of more
companies or special purpose vehicles (SPVs) – the shares of which can then be held by a foundation, purpose trust,
etc. This is often done for a number of reasons – including ensuring legitimate confidentiality, and for the SPV to
act as a “firewall” in the event there is some difficulty with the artwork itself (e.g. provenance), so that the
assets in the parent entity are not put at risk from potential claims. Also, a corporate structure generally
facilitates transactions such as lending.
Selection of art pieces in all the above structures, donors and/or their family offices can be integrated into
fiduciary structures for the purpose of making decisions as to which pieces of art are bought and sold. For example,
this can be achieved either by donors sitting on the PTC Board / Foundation Council, or creating an advisory body to
the structure. Relevant legal and tax advice may be required, depending on the proposed form of decision-making body
and the intended location for it to make art investment decisions.
Key consideration in selecting a trust jurisdiction
A collector wishing to establish a fiduciary structure should give consideration to choosing the most appropriate
jurisdiction for the administration and long-term protection of trust structures to hold their art wealth. Most often,
this choice will be guided by professional advisors and will take into account the attributes of fiduciary companies
The following points should however be borne in mind:
Ensuring there is zero taxation of the proposed structure and its beneficiaries in
the chosen jurisdiction itself, as well as no exchange or currency controls.
Quality of laws
Comfort in the robustness and flexibility of laws (e.g. trust / company laws), which
uphold the interests of beneficiaries and provide “firewalls” against unwarranted claims by hostile parties.
Experience and quality of the court system in resolving disputes. This is a strong
attribute for long-established international trust jurisdictions, compared to newer finance centers, where the courts
may be relatively untested.
Some jurisdictions such as Guernsey, Jersey and other UK Overseas Territories provide for an ultimate right of appeal
to the Judicial Committee of The Privy Council in the UK. This can add significant comfort for HNWIs, who are
Checking whether a jurisdiction regulates its fiduciary service providers, and
if so, to what extent. Sound regulatory regimes will often include capital adequacy tests for service providers, “fit and
proper” criteria for trust directors, and codes of best practice for fiduciaries to uphold the interests of clients.
As the global drive towards tax transparency continues, it may become increasingly
difficult for certain “secrecy” jurisdictions to administer trusts and handle incoming / outgoing payments with
global financial institutions – if those jurisdictions are not committed to standards including FATCA and the future
OECD “Common Reporting Standard”, which are being introduced to combat tax evasion.