WYWH: Introduction to Estate Planning for Artists in “Your Art Will Outlive You”

February 10, 2017

By Heather DeSerio

The subject of what life keeps in store for artists’ legacy when they are no longer around to protect their works is of increasing interest to auction houses, galleries, heirs and artists themselves. On January 11, 2017, the New York Foundation for the Arts (NYFA) in conjunction with the New York State Bar Association’s (NYSBA) Entertainment, Arts, and Sports Law Section (EASL) Committee on Fine Art and NYSBA’s Pro Bono Committees hosted an event, entitled “Your Art will Outlive You- How to Protect It Now,” which took place in Dumbo Brooklyn, New York. The panel of lawyers and art professionals presented a two-hour overview to artists and art professionals about what an artist can do to protect their work now, rather than wait until after they pass away.

 

There were six key speakers: Judith B. Prowda of Sotheby’s Institute of Art, Carol J. Steinberg of Law offices of Carol J. Steinberg, Elisabeth Conroy of Edward W. Hayes, P.C., Declan Redfern who is a Partner at Kayser & Redfern, LLP, Peter Arcese, practicing T&E attorney and an Adjunct Professor at the NYU School of Continuing and Professional Studies, and Alicia Ehni, an artist and Program Associate at NYFA Learning. The majority of those in attendance were artists, with at least one conservator and a recorder for estate processing. NYFA, a nonprofit organization with a mission to “empower emerging artists and arts organizations across all disciplines at critical stages in their creative lives and professional/organizational development” created its own “Take Aways” for the event that can be found here.

While artists tend to shy away from legal topics, this sold-out event was clearly of interest and tackled such fascinating and complex topics as will drafting, estate planning for artists, establishing artist foundations, gifting artwork while living, copyrights, and forming artist cooperatives. The following is a summary of the discussion that took place.

1. Wills

Elisabeth Conroy, an Associate at Edward W. Hayes, P.C., started the stimulating presentation on estate planning for artists by giving an introduction to what a will is and followed up by providing the requirements for a valid and enforceable will. The five requirements are that (1) the will must be in writing; (2) must be signed by the person whose will it is, which is called a testator and they must be 18 years old; (3) signed at the end of the will; (4) published, meaning that there is an acknowledgement that this is your last will and testament; and (5) at least two witnesses must sign in the presence of the testator within 30 days of one another. Additionally, she spoke about choosing an executor of the will, types of bequests, joint wills, how to store and update a will when major life changes occur such as marriage, divorce, and children. Conroy mentioned that while an attorney is not required to create a will, it may be a good idea because using an attorney to draft and execute a will creates a presumption of the will’s validity. She also highlighted the commonly overlooked importance of having a living will and a health proxy, because designating someone to make health decisions if a person becomes incapacitated is a good idea. She ended her remarks by recommending that people should execute a Health Insurance Portability and Accountability Act of 1996 (HIPAA) authorization so the person that serves as the health proxy will also have access to a person’s medical records to make important life decisions.

2. Estate Planning for Artist- Trusts, Foundations, Fiduciaries, and Valuing Art

Peter Arcese is a trusts and estates practitioner who also serves as an Adjunct Professor at NYU School of Continuing and Professional Studies. He delivered quite an impassioned and intriguing presentation about estate planning for artists and why it is unique for artists. He highlighted various types of trusts that exist. Arcese repeatedly stressed the importance of appointing a qualified fiduciary. A qualified fiduciary means the fiduciary should understand what the artist’s intentions are and be competent enough to deal with auction houses, the artist’s family, lawyers, and accountants. Arcese also noted that a fiduciary should be savvy and knowledgeable enough to make decisions that are in the best interest of the artist and can deal with complex issues that may arise pertaining to funding the foundation and overseeing the administration of the estate. In addition, it is important that the fiduciary does not engage in self-dealing. This is so that the artist would avoid many problems that other artist foundations have faced such as was illustrated by the infamous Rothko case.

Art valuation is a complex topic that was briefly discussed on several occasions. Arcese told the audience about the important benefits of achieving discounts for the benefit of taxation of the estate when an artwork is sold. He pointed to the David Smith case and the DeKooning case.

One of the questions asked during the event was about the availability and reliability of art appraisals for lesser known artists. He responded that a person should try to find a highly qualified individual with a good reputation to appraise the artworks and give an estimate. This can usually be done by an auction house or qualified appraiser. There was no definitive clear answer to a follow-up question about whether the appraisals are correct, but, Arsece told the audience, “It should be based on the fair market value or what one would get at auction.”

Funding the Foundation:

Artist foundations have got their initial funding in ways such as:

1. Borrowing money: The Adolph and Ester Gottlieb Foundation borrowed the first $10,000 to make grants and started with nothing else.

(*The Adolph and Ester Gottlieb Foundation was the first foundation to give money to artists.)

1. Funded by select gifts of art to the estate to sell off, and the proceeds are used to help get the initial funding started.
2. Facilitate exhibits of works in estate’s collection.
3. Publish a catalogue raisonné of the artist’s works.
4. Licensing of the copyrights in accordance with the artist’s wishes.
5. Life Insurance Policy: The funds received can be directed to help fund the establishment of the foundation to help pay for the initial cost of the foundation.

During Arsece’s abridged discussion about artist foundations, he emphasized key points. First, how important it is for all artist to leave clear directions about what to do and directions that layout the vision for the foundation. Next, he pointed out that foundations can be created during the artist’s lifetime or created upon death. In conclusion, Arsece reviewed the types of foundations: there are public foundations, which are based on the corporation structure, and there are also private foundations that are run by family members or named individuals by the artist.

Many questions from the audience concerned matters of funding the artist foundation and tax issues. One question specifically asked if it is a good idea to create a trust to minimize taxation in comparison to having a will. The answer was a resounding yes from several the panelist that confirmed that a trust can save on taxes. There is a one-time credit that the IRS Code allows of up to $5,500,00.00 of the value of artwork that is not subject to taxation. This exempt amount of artwork can be set aside in a trust and will not be taxed again. The monetary value of artwork is determined from the date when the artist passes and the appreciation in value of the work is free of taxation. It is advised to consult an attorney that is experienced in setting up trusts so that they tailor the plan to accomplish whatever tax savings are best depending on the individual’s goals.

3. Artist that Gift Artwork During Artist’s Lifetime

Declan Redfern, a partner with Kayser & Redfern, LLP, with more than three decades of Trust & Estates experience including litigation both in the U.K. and the U.S. Redfern drew upon his experience to illuminate another important aspect of artist devising their property during their lifetime by elaborating on the differences between gifting an artwork during the artist’s lifetime (inter vivos gift) and how the copyright exists separately from giving of the physical work itself. An artwork’s copyright does not automatically transfer just because the physical object is gifted to someone.

When a living artist gifts artwork to someone, there are three general requirements that must be established to prove that it was an inter vivos gift: First, there has to be an intent to divest the title by the donor, second the acceptance of artwork by the donee, and third, delivery of work from the donee to the donor. Once all three requirements have been established, then an inter vivos gift has been perfected and it is no longer part of the artist’s collection.

Redfern highlighted several issues with gifting. Each example indicated problems with trying to figure out what happened with the gift during the deceased artist’s lifetime when there was conflicting circumstances, conflicting documents, or the artist’s intent was not clear. These examples illustrate that it is imperative for artists to make their intentions clear in written document that clearly describes their intentions at the time when they gift is given and indicates what rights are intended to be gifted.

He concluded his presentation by talking about the Deadman Statute. It is an evidentiary rule that applies in court when trying to establishing if a gift was actually gifted because one cannot rely upon what a Deadman told a person. There must be documentation that is notarized by a disinterested party to defeat a Deadman Statute. This also helped reinforce the idea about getting things in writing and even notarized by disinterested parties so that a person can establish that an inter vivos gift was intended to be given by the artists and if any copyrights were granted with the inter vivos gift besides possession of the artwork.

4. Copyright Law

Carol J. Steinberg, one of the organizers of the program as well as a speaker, discussed copyright law because these rights are important for artists to consider when a person is creating an estate plan for the artist’s artwork. She stressed the importance of understanding that the law grants artists six set of copyrights, which exists separately from the physical artwork itself. Under the Copyright Act of 1976 Section 106 the six different rights are:

1. the reproduction right;
2. the right to prepare derivative works based upon the copyrighted work;
3. the distribution right of copies or phonorecords;
4. the right to perform the copyrighted work publicly;
5. the right to display the copyrighted work publicly; and
6. for sound recordings, the right to perform the work publicly by means of a digital audio transmission.

Steinberg also informed the audience that artists can choose to retain or assign the six different copyrights independently from one another. The assignment can be done while the artist is still living or upon the artist’s death in a testamentary document that indicates the artist’s intentions for the artwork’s copyrights.

She tied it all together by mentioning that the copyrights are commonly administered after the artist death by the artist’s foundation or estate in accordance with the artist’s wishes as indicated in the artist’s testamentary documents. This is an important remark because with the rise of the internet there has been an increase in litigation involving issues such as the unlicensed reproduction, distribution, and creation of derivative works involving items such as a catalogue where the artwork is reproduced in a picture or a reproduction of the artwork is displayed on a picture on a website that features the artwork. Sometimes this occurs when owners of the physical artwork fail to realize that they need a license from the artist’s foundation or artist’s estate which are in charge of administering the artist’s copyright in a work of art after the artist is deceased. This licensing of an artwork’s copyright is necessary to ensure that another is not infringing on the artist copyrights that are still retained by the artist’s foundation or estate.  

5. Artist Cooperatives

Alicia Ehni, the Program Associate at New York Foundation for the Arts, suggested to the audience of the program that artists should form cooperatives consisting of artists, curators, collectors, and other key players in the art world. This would benefit artists because it would  get their work seen by other professionals in the art world, which in turn gives them the exposure they need to potentially get placed in shows and museums. An increase in an artist’s visibility and prominence in the art world helps artists to increase their collectability and raises their value in the art market. A trickle effect results in more work being produced by an artist as they sell more work. Once an artist increases their work output, then there is a greater need for the artist to keep proper documentation about the work they produce and track the work’s provenance. This is because documentation is helpful in the art resale market and for authenticity. Unfortunately, artists and their foundations or estates are plagued with problems such as authentication of artwork, lack of documentation by the artist while they are living, and the need to generate income from the artist artwork to fund the artist’s foundation.

Authentication of artwork is a problem when there is a lack of record keeping performed by the artist during their lifetime. This is a highly controversial topic because artist estates and authenticators have faced several lawsuits about artworks that were improperly attributed to an artist that turned out to be forgeries. Thus, authenticators and artist’s estates tend to shy away from authenticating artworks since they do not want to be held liable for wrongly authenticating an artwork. One thing that could help with this authentication problem is for living artists to be proactive in creating a method of systematically documenting their artwork. This protective step is commonly overlooked by artists, which could create problems down the line because no one else is better qualified to determine which works should be attributed to the artist then the artist themselves.

An artist should regularly document their work by taking photos, creating a numbering system, record when an artwork is sold and to whom it was sold. Also, an artist may want to keep a list of where the artwork is stored or consigned, and provide information about the artworks materials and dimensions. Thorough records created during the artist’s lifetime would facilitate the artist’s estate management of the collection and distribution of the inventory if and when the foundation in charge of the works needs to sell authenticated works. Therefore, artists should be prudent and begin this practice at the beginning of their career to ensure their legacy is protected.

Conclusion:

“Establishing the Artist Foundation” is a vital topic in the art industry as demonstrated by the challenges encountered by high-profile foundations such as the Rothko and Warhol Foundations. Many artists, galleries, and auction houses are transforming their business strategies by incorporating artist management to help meet the needs of aging artists. Crassly put, dead artists are big business for sales, exhibits, and catalogue raisonnés. As mentioned by Robin Pogrebin in her New York Times article, “Decision Time For Aging Artist,” aging artists such as Chuck Close are beginning to think about planning for their families now rather than simply leave it to a gallery to manage their estate as artists commonly have done in the past. Artists are taking an active role in establishing a plan for their work to curtail many of the problems other artist’s estates and foundations have faced. In deciding how to develop a plan for the artist’s artworks the legacy, preservation, copyright, licensing, establishing an artist foundation, establishing a trust, and the selection of a qualified fiduciary are all important elements that merit additional education and planning to ensure the will of the artist is honored posthumously. The artist should consult a qualified and experienced attorney to establish a plan and guide them through the process of estate planning for artists.  

Select Sources:

1. In re Rothko, 84 Misc. 2d 830, 379 N.Y.S.2d 923 (Sur. Ct. 1975), modified, 56 A.D.2d 499, 392 N.Y.S.2d 870 (1st Dep’t), aff’d, 43 N.Y.2d 305,372 N.E.2d 291, 401 N.Y.S.2d 449 (1977); on remand, 95 Misc. 2d 492, 407 N.Y.S. 2d 955 (NY Sur. Ct. 1978).
2. Simon-Whelan v. Andy Warhol Found. for the Visual Arts, Inc., No. 07 CIV. 6423 (LTS), 2009 WL 1457177 (S.D.N.Y. May 26, 2009).
3. Jennifer Maloney, The Deep Freeze in Art Authentication, April 24, 2014 available at https://www.wsj.com/articles/SB10001424052702304279904579518093886991908

About the Author: Heather DeSerio (NYLS, JD candidate, Class 2017) is a Spring 2017 Legal Intern with the Center for Art Law. In her studies, she is concentrating in Intellectual Property Law. Prior to law school, she worked as a fine artist and received a Bachelor of Fine Arts in Painting from Ringling College of Art and Design. She can be reached at heather.deserio@law.nyls.edu.