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WYWH: A Primer on Artist Trusts

January 24, 2023

By Nikki Vafai.

To guide with the estate planning and legacy preservation process, in 2022, Center for Art Law hosted a virtual two-part “A Primer on Artist Trusts” series. The first part of the series, hosted on June 16, focused on the basics of setting up an artist’s trust and factors to consider when deciding whether to create one. The second part of the series took place on November 21; it dived into the nuts and bolts of setting up a trust. Both events are archived and available on demand.

This series was made possible with the collaboration of Julia Schwartz, Artist Legacy Foundation; Tracy Bartley, R.B. Kitaj Estate; Farley Gwazda, Gwazda Art Services; and contemporary art curator, writer and researcher Kristina Newhouse.

A Primer on Artist Trusts: Part 1

Speaker 1 – Melissa Passman, Esq.: Overview of Trusts

The estate planning process can seem complicated with the number of options and buzzwords out there for securing a loved one’s legacy–wills, trusts, estates, foundations. The first session of the series discusses the basics of artist trusts, the pros and cons, and the real life experience behind making the decision to create one.

The first half of the program was led by Melissa Passman, an attorney at Day Pittney, who has extensive experience with tax, trusts and estates, and art law. Passman began the series with an overview of what trusts are and how they compare to other legacy planning entities.

Passman explained that estate plans are often desirable because without one, default inheritance laws will apply upon an artist’s death. Passman explained the different types of entity options available such as creating an LLC, S-Corp, trust, or private foundation. With an LLC, a single member is disregarded for income tax purposes and members of the LLC will not be held personally liable for obligations of the LLC. Additionally, an LLC provides ownership and membership flexibility. A trust is a private agreement whereby the timing of the beneficial ownership and division of title between different parties can be controlled. It is administered by a Trustee. A private foundation can be formed as a trust or corporate entity.

Passman then provided an overview of the basics of a trust and key actors such as the beneficiary, settlor/grantor, and trustee. A trust instrument is a document that names the settlor and the trustee and lays out the governing terms. Passman then gave an overview of the types of trusts available such as revocable, irrevocable, and charitable trusts. Revocable trusts do are trusts that can be revoked or amended but do not have any significance for income tax purposes. Meanwhile, irrevocable trusts may not be revoked or amended. They are immediate gifts of property and may be subject to gift tax and federal tax. Charitable trusts on the other hand are forms of irrevocable trusts established for charitable purposes and provide for income tax deductions. To conclude, Passman stated that the decision to choose a trust ultimately comes down to the artist’s goals.

Speaker 2 – Jamie Johnson: Real Life Experience Creating an Artist Trust

Jamie Johnson led the second half of the program, sharing her experience creating an artist trust. Johnson is the managing trustee for the William S. Dutterer Trust, which she created in 2018. Prior to that, she managed Dutterer’s estate.

Johnson was married to artist Dutterrer and when he passed away in 2007, he left all of his artwork to Johnson in his will. Johnson explained that initially, her two options were to declare no real value for the work or to throw out the work. After hiring a professional to assist her, Johnson considered different entities to manage the artworks. She noted that her main hesitation against establishing a foundation was the extensive regulations and management necessary. She therefore decided to create a trust because of the relatively minimal regulation requirements, affordability, and ease of management. Johnson created an irrevocable trust in 2018 and gathered legal representation, an art accountant, and board of directors.

Johnson explained the consequences of creating the trust such as the increased credibility of her work and her network within the art world. She concluded by describing the trust’s goals for the future and contextualizing their present position towards that goal.

A Primer on Artist Trusts: Part 2

Speaker 1 – Bennet Grutman, CPA: The Financial Basics of Creating a Trust

What counts as a well-formed artist’s legacy? Taking care of the family members? Placing art in institutions? Shaping a careful and complete narrative? An artist’s legacy plan often requires a series of complex legal entities for the preservation and protection of a lifetime of work. The second session focused on selecting and creating several different types of trusts and other entities that are commonly used in legacy planning. ‘Planning’ and ‘conducting’ may encompass lifetime giving placement of one’s work or selling, and always a focus on the minimization of income, gift and estate taxes. An artist must be mindful of valuation issues, the needs for the management of their archives , placement of art, conveyance of intellectual property and of course, the responsibilities they have to their family and friends. The session also looked into who the beneficiaries and who the trustees are.

The second installment in the series began with a discussion of the accounting questions. The first speaker Bennet Grutman, CPA, has extensive experience advising artists, collectors, dealers, gallery owners, trustees, and foundation directors. He also served as a trustee to Robert Rauschenberg’s multi-billion dollar estate.

Gurtman began by explaining some of the concerns artists have when planning to create a trust such as personal needs and family support, tax minimization, and furthering their legacy and philanthropic goals. Grutman then dived into the tax planning maneuver to try to reduce adverse effects of tax rates on trusts. He stated that trusts and estates are separate taxable entities that receive their own income and pay their own expenses. A grantor trust, he explained, pays all of the income tax on the income and gains of the trust and a non grantor trust pays its own income tax.

Grutman provided an overview of some of the available trust types and different transfer strategies. These transfer strategies include testamentary transfers, inter vivos sales, and lifetime gifting. A testamentary transfer is when the transfer is made in a will after the artist’s death and includes purchases of artwork by the trust from the artist’s estate. Inter vivos sales are transfers made during the artist’s lifetime such as an installment sale to an intentionally defective grantor trust. Lifetime gifting is the gifting of artwork during the artist’s lifetime and includes contributions to charitable trusts or split-interest trusts. Grutman concluded his presentation on the financial and tax overview of artist trusts by explaining the process behind transfers to non-grantor trusts, transfers to grantor trusts, and split-interest charitable remainder trusts.

Speaker 2 – Caryn B. Keppler, Esq.: The Financial Basics of Creating a Trust

Caryn B. Keppler, Esq. presented the second part of the webinar. Keppler is a partner at Pierro, Connor & Strauss. She has experience in estate and trust planning as well as gift and charitable planning for a wide client base which include artists, collectors, and artists’ foundations. Keppler is a director of the Estate Law Specialist Board Inc.

Keppler began by weighing the pros and cons of creating a trust for artists. She stated that while trusts can provide for centralized control by a fiduciary, they are usually not the recommended option. She explained that there are other entities that provide for more control, better tax consequences, and are better for management for an artist. Problems with trusts include the restriction by the terms of the governing agreement, the inflexibility of amending them, and high tax rates at low income levels. Keppler suggested that business entities provide a better, more flexible means of managing an artist’s artwork. Separate entities are a great way to separate the intellectual property and the artwork. To separate the entities there are different entities that can be used such as LLCS, C Corporations, S Corporations, and charitable foundations. The most common and flexible form is the LLC. Some of the advantages of the LLC are the ability to have different classes of ownership and the fact that they may be treated as pass-through entities so that the income, expenses, and tax attributes are passed to the owners and members. However, LLCs require the artist to relinquish their artwork for membership interest and LLCs have attracted the attention and scrutiny of the IRS, in terms of income tax.

C Corporations provide a high level of protection from risk and allow for different classes of ownership but are disfavorable in terms of taxation and costs. S Corporations on the other hand, have more favorable tax treatment and state law liability of shareholders is limited. However, S Corporations disallow tax-free distributions of property and are limited in their ability to be owned by trusts. Artist foundations, Keppler explained, help preserve an artist’s legacy and can be created during the artist’s lifetime or after their death. It can be formed as a charitable trust or a nonprofit corporation. Foundations can also provide for income tax deductions and estate tax savings. However, there are strict rules regarding minimum annual distributions to qualified charities and against self-dealing, which make it very important to strategically select the board of an artist foundation. Keppler stressed the difficulty of estate planning and the importance of consulting with accountants and attorneys.

The audience for the sessions included artists, directors of estates, art professionals, young attorneys, established attorneys, undergraduate and graduate students. Some of the questions posed during the session included what the qualifications, experiences and skill set required from a Trustee in the case of Trust or from a Board member in case of an artist charitable foundation were and the commitments generally required of a trustee. Caryn Keppler responded that first and foremost, a trustee has to be a person once can trust. A trustee can always hire a team of experts to assist him/her/them – such as an attorney, accountant, investment advisor, art advisor. But the trustee has to be someone that one knows will be faithful to the terms of the trust document and fair to the beneficiaries. In New York, an individual trustee is entitled to be compensated pursuant to statutory rates: (a) an annual commission based on the value of the trust, and (b) 1% of all principal paid out during an accounting period when the trustee accounts to the beneficiaries. Of course, individual trustees can waive compensation but Keppler tells clients that are considering serving as trustees that it can be a lot of work and can open them up to a lot of potential liability so that they do deserve to be compensated. Corporate trustees such as banks are compensated based on their own published rate schedules. For foundations, board members should have some knowledge of the artist’s work and goals for the foundation, as well as working knowledge of the artist’s business. It’s a good idea to have an attorney, accountant, a financial advisor and family members on the board. If the artist has a staff, staff members are usually good additions since they have a working knowledge of the day to day workings of the business. Compensation will be dependent on the size of the foundation and the amount of hours and contribution that a board member puts in. When Keppler serves on a board, she usually asks to be paid on an hourly basis for her time. In both a trust and a foundation, the time involved will always depend on the size of the trust or foundation, the assets involved, the number of meetings (foundations should meet at least 1x annually if not more often if they are very active). And if the artist hasn’t properly inventoried their work before death, the initial work is substantial and could mean several individuals working full time for years just to get organized. That’s why creating a proper inventory and archive are the most important things that an artist can do for their estate and legacy.

Other questions asked by the attendees included:

  1. Who should one reach out to first in the process of establishing a trust? Whether to first reach out to an attorney, CPA, or appraiser.
  2. How do you move from an S corporation to an LLC corporation?
  3. What factors should an artist take into consideration when deciding which structure to set up?
  4. What are the requirements a beneficiary has to keep various interests separate? What happens when interests merge?
  5. How does one add art to a trust or other entities, especially if there are a lot of artworks or archival materials that have not been appraised or inventoried or have more cultural value than financial value?

Offered as part of the Center’s Estate Planning for Artists Clinic, the series aimed at addressing the different types of trusts and other entities including limited liability companies and foundations, to help artists or their family members think about the nuts and bolts of setting up a trust and calculating the costs associated with successful operation of these different trusts. The series underscored the importance of getting sound and experienced advice from legal and tax experts for creating a sound legacy plan, unique for each artist and providing the knowledge for them to satisfy their ideas for immediate and lasting needs.

Handouts for the event

  1. Cases:
    • Architectural Body Research Found. v. Reversible Destiny Found., 335 F. Supp. 3d 621 (S.D.N.Y. 2018).
    • Andy Warhol Found. for the Visual Arts, Inc. v. Federal Ins., 189 F.3d 208 (2d Cir. 1999).
    • Andy Warhol Found. for the Visual Arts, Inc. v. Goldsmith, 992 F.3d 99 (2d Cir. 2021).
    • City Bank Farmers Tr. v. Arnold, 197 N.E. 288 (N.Y. 1935).
    • Georgia O’Keeffe Found. v. Fisk Univ., 312 S.W.3d (Tenn. Ct. App. 2010).
    • Grosz v. Museum of Modern Art, 772 F. Supp. 2d 473 (S.D.N.Y. 2010).
    • Johnson v. Smithsonian Inst., 189 F.3d 180 (2d Cir. 1999).
    • Meaders v. Helwaser, 436 F. Supp. 3d 766 (S.D.N.Y. 2020).
    • Mesbahi v. Blood, 172 A.D.3d 1580 (N.Y. App. Div. 2019).
    • Morgan Art Found. v. Brannan, 2020 W.L. 469982 (S.D.N.Y. 2020).
    • O’Keeffe v. Bry, 456 F. Supp. 822 (S.D.N.Y. 1978).
    • Rauschenberg Found. v. Grutman, 198 So. 2d 685 (Fla. Dist. Ct. App. 2016).
    • Reis v. Comm’r of Internal Revenue, 87 T.C. 1016 (U.S.T.C. 1986).
    • Rockwell v. Tr. of Berkshire Museum, 2017 W.L. 6940932 (Mass. 2017).
    • Simon-Whelan v. Andy Warhol Found. for the Visual Arts, Inc., 2009 WL 1457177 (S.D.N.Y. 2009).
    • Thome v. Alexander & Louisa Calder Found., 70 A.D.3d 88 (N.Y. App. Div. 2009).
  2. Treatises:
    • 75A N.Y. Jur. 2d Literary and Artistic Property § 35
    • § 2:18. Trusts and estates—Artists and Collectors, 1 Darraby on Art Law § 2:18
    • § 18:18. Gifts—Cy pres doctrine, 2 Nonprofit Organizations: Law and Taxation § 18:18 (2d)
    • § 27.36. Examples of estate planning case studies with the private foundation, 24 Mass. Prac., Estate Planning § 27.36 (3d ed.)
    • § 871. Procedure—Parties—Costs and fees, Bogert’s The Law of Trusts and Trustees § 871
  3. Books:
    • Christine J. Vincent et al.,The Artist as Philanthropist: Strengthening the Next Generation of Artist Endowed Foundations, (Christine J. Vincent eds., Aspen Institute 2019).
    • Christine J. Vincent et al., The Artist as Philanthropist: A Reading Guide to the Study Report for Artists and Their Family Members, (Christine J. Vincent eds., Aspen Institute 2013).
    • Daniel McClean et al., Artist, Authorship & Legacy: A Reader (Daniel McClean eds., 2019).
    • Jeffrey L. Condon, The Living Trust Advisor: Everything You (and Your Financial Planner) Need to Know about Your Living Trust (2015).
    • Karl Trott & Loretta Würtenberger, Artists’ Estate: A Handbook for Artists, Executors and Heirs (2022).
    • Magda Salvesen, Artists’ Estates: Reputations in Trust, (M. Salveseen & Diane Cousineau ed. 2022).
    • Sotheby’s Institute of Art, Creative Legacies: Artists’ Estate and Foundations (Kathy Battista & Bryan Faller ed. 2000).
  4. Articles:
  5. Videos:
    • What is Legacy Planning?: A Legal Perspective, R.B. Kitaj Studio Project (Apr. 6, 2021).
  6. Podcasts:
    • Hrag Vetanian, What Should Artists Do With Their Work After They Die?, Hyperallergic Podcast (Apr. 18, 2019).
  7. Sample Artist Trusts:
    • Edward Gorey Charitable Trust
    • Renate, Hans, and Maria Hofmann Trust
    • William S. Dutterer: Dutterer Trust

About the Author

Nikki Vafai is a law student at the University of Maryland Carey School of Law and holds a B.A. in International Affairs and Art History from the George Washington University. Nikki served as a 2022 fall legal intern at the Center for Art Law.

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