May 2018
Down to a Fine Art: Practical Tips For Holding Collectibles In Trusts
Acquiring artworks, antiques, and other collectibles is a common pastime of private clients, for reasons that can vary greatly from profit-making to maintaining cultural ties, or simply as a general reflection of their interests. It is also a pastime that is on the rise: having weathered global financial crises in recent times, and perhaps anticipating market volatility in the future, many private clients are increasingly looking to invest in “real assets” that are known to maintain or increase in value in the long term. Art very much fits that profile and, with trusts being a favoured vehicle in which to hold such assets, trustees are more frequently being asked to acquire and manage artworks as part of their trusteeship.
Art as a trust asset
Most commonly, artworks forming part of the assets of a trust comprise a well-established family art collection, with the trust itself having been established to protect and preserve that collection for the enjoyment of future generations of the family. However, in modern times, trustees may be required by the terms of the trust deed to do more than simply hold and protect family artworks: trustees may have duties to actively build an art collection for the benefit of the beneficiaries of the trust, they may be asked to manage artworks for philanthropic purposes, or they may find themselves appointed as trustee of a trust, established with the express objective to invest in an emerging artist in order to fund and promote further works.
Type of trust structure
From a Cayman Islands perspective, the most effective trust structures used solely for holding and actively administering and managing artworks in accordance with the settlor’s objectives are STAR trusts and reserved powers trusts. The trust deeds for both forms of trust structure can be tailored to offer the settlor greater involvement in the succession planning process, and to carefully prescribe arrangements for the management of the particular categories of artworks settled on the trust. Practically speaking, housing artworks in a trust can also allow for a clear and easier administration and management process: provisions can be included to allow for the trustee to delegate tasks to specialist advisors or curators who can make the necessary arrangements for matters such as transportation, insurance, storage, and display or exhibition of the artworks.