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Estate administration is as dynamic as the many places where an artist or art collector lived, worked, traveled and stored artwork. It’s not uncommon for an artist or collector to maintain a presence across multiple states, countries and continents, resulting in an art collection displayed in locations across the globe, such as in private residences, museums and art galleries. When their art isn’t on display, artists and collectors may store their art in different locations for a variety of reasons, such as to keep inventory where an artist’s representative gallery is based or frequently makes sales or to store art in states that have advanced, museum-quality fine arts storage facilities, like Delaware. One common issue, therefore, that besets the estates of artists and collectors is how to administer artwork located in various states and countries. In addition, artwork may present unique valuation challenges given its potentially significant value and may be comprised of materials that are regulated or even banned in certain jurisdictions that limit interstate or international movements of such artwork. We’ll highlight some practical issues that executors and fiduciaries should consider when administering an estate with artwork located in multiple jurisdictions.
Multi-Jurisdictional Probate
To gain legal authority over assets that a decedent owned individually at the time of death, probate is generally required in the state of the decedent’s domicile and in any other state where property may be located at the time of the decedent’s death.1 Although generally a decedent’s will is probated in the decedent’s state of domicile, the global nature of the market in which an artist or collector is involved may give rise to specific multi-jurisdictional probate issues.
If a decedent had significant ties to more than one state, the question of domicile may be thorny and is sometimes the subject of disputes between states. States should give full faith and credit to any ruling made in a competent court of another U.S. state. However, a determination of domicile in one state isn’t always binding on another.2
Artwork held by the decedent in an individual capacity and located within the United States will typically need to be distributed to the beneficiary identified in the decedent’s will (or via intestacy laws) through probate in the state where the artwork is located at the time of the decedent’s death, regardless of where the decedent may have been domiciled. When a decedent dies having left artwork in a state where the decedent wasn’t a domiciliary, the executor of the decedent’s estate will need to file for ancillary probate in that state.3 For example, if a decedent were domiciled in New York but passed away with artwork stored in a fine art storage facility located in Delaware, the executor of the decedent’s estate may be required to file for probate in New York, as well as for an ancillary probate proceeding in Delaware.4 This probate requirement is independent of any state-level estate tax obligations that may be imposed on tangible personal property located within a given state. As a practical starting point, it’s recommended that an executor identify and confirm the potential jurisdictions where artwork is located as soon as possible to plan properly for the scope of the estate administration process.
Additional issues may arise for non-U.S. artists and collectors who have passed away with artwork located in the United States. When an artwork is physically located in the United States, an executor for the estate of a non-U.S. person may be required to probate such artwork in any U.S. state where the artwork is located at death and may be required to file an estate tax return and pay federal (and potentially state) estate taxes.5 Artwork loaned for exhibition to a “public gallery or museum” may be deemed not located in the United States for federal estate tax purposes, though other loans or consignments may not qualify for this exception.6
An added layer of complexity arises when tangible personal property is located outside of the United States. For example, an artist who’s a U.S. citizen and who isn’t domiciled in the United Kingdom may die with artwork located in the United Kingdom that was on consignment to a London gallery. In this case, the executor will have to engage U.K. counsel to review the U.K. laws regarding the exemption threshold for tax due on this artwork for U.K. inheritance purposes. Even if the value of the artwork located in the United Kingdom falls under the threshold, however, a specific probate form is required in the United Kingdom, even though no estate tax may be due.
If an executor or fiduciary ignores the required probate procedures for a jurisdiction where artwork is located, then any custodian of such artwork in that jurisdiction (such as a storage facility or museum to which an artwork may have been loaned) may deny a request from the executor or fiduciary to release the artwork, complicating any attempt to transfer the artwork to a beneficiary or sell the artwork to raise funds for the estate.
Appraisals and Sales
It’s been eight years since the seminal Estate of Newberger case was decided.7 In Newberger, the Tax Court held that “no evidence is more probative of [an artwork’s] fair market value than its direct sale price.” In doing so, the Tax Court rejected an estate tax appraisal of an artwork for $5 million when that same artwork sold for nearly $13 million approximately seven months after the valuation date of the appraisal (that is, the date of death). Instead, the Tax Court held that the artwork’s fair market value was $10 million—the amount determined by the Internal Revenue Service appraiser who adjusted the final sale price downward to account for the market conditions in existence at the date of death.8 In light of Newberger, estate tax appraisals for art should factor sales data generated close in time to a decedent’s date of death.
In addition, executors and fiduciaries administering large collections of artwork have often historically turned to auction houses as a resource for providing valuations to be used for estate tax appraisals. The ease of using an auction house for this purpose has been somewhat compromised since the release of the Estate of Kollsman9 case, in which the U.S. Court of Appeals for the Ninth Circuit found that the auction house had a conflict of interest when it appraised a collection for estate tax purposes while at the same time offering to sell the artworks at auction. Nevertheless, an auction house may be the best placed party to perform an estate tax appraisal for an executor or fiduciary; however, the issues just described must be carefully navigated.
Restricted Materials in Art Collections
Many art collections include antiques containing sensitive materials or objects of cultural significance, which may be subject to various legal restrictions. Starting in 2015, the regulation of ivory became a major focus for estates that owned ivory objects and furniture. Since that time, the federal government and several states have adopted distinct and sometimes conflicting rules via legislation and regulations to address the possession, movement and sale of ivory.10 One point to keep in mind is that the rules that pertain to ivory may vary depending on the species of elephant (or walrus, rhinoceros, etc.) from which it’s sourced.
Executors must examine the federal and state-level rules any time an object containing ivory crosses state lines. Further, any time an object containing ivory crosses international lines, an executor must review the import and export ivory rules of both the United States and the foreign country. Note that such rules aren’t exclusive to ivory. Therefore, executors must be cognizant of the complex web of state, federal and international rules pertaining to other restricted animal materials (for instance, feathers, hide and bones from certain species), as well as certain types of wood.
New York, for example, imposes strict rules concerning dispositions of objects containing ivory or rhinoceros horn. In addition to the applicable federal restrictions, New York prohibits the sale or distribution of ivory objects unless the object is: (1) a bona fide antique, with historical documentation, proven to be at least 100 years old and comprised 20% or less of ivory; (2) given for a bona fide educational or scientific purpose; (3) given to certain chartered museums; or (4) part of certain musical instruments.11 However, New York authorizes the issuance of permits for a distribution of an object containing ivory or rhinoceros horn to a legal beneficiary of a trust or an heir or distributee of an estate.
Finally, an executor or fiduciary should be aware that certain artwork, especially antiquities, may constitute cultural property and be subject to patrimony claims asserted by other countries. An executor or fiduciary should carefully review all provenance documentation available (to the extent the decedent maintained records) for any antiquities or other cultural property and understand the landscape for restrictions and potential liabilities that may affect the disposition of such objects.
— We would like to acknowledge Amanda A. Rottermund, senior associate at Withers Bergman LLP, for her assistance with this article.
Endnotes
1. See, e.g., Uniform Probate Code Section 3-201.
2. See Overby v. Gordon, 177 U.S. 214 (1900).
3. See, e.g., NY SCPA Section 1601; Cal. Prob. Code Section 7052.
4. See 12 Del. C. Sections 1307, 1504(b), 1505.
5. See, e.g., Internal Revenue Code Section 2101.
6. IRC Section 2105(c).
7. Estate of Newberger v. Commissioner, 110 T.C.M. (CCH) 615 (T.C. 2015).
8. See ibid.
9. Estate of Kollsman v. Comm’r, 777 F. App’x 870 (9th Cir. 2019).
10. See, e.g., 16 U.S.C. Section 4201 et seq.; 16 U.S.C. Section 1538; 50 C.F.R. 17.40(e).
11. See NY ECL Section 11-0535-a.