Are you considering donating artwork to charity? There are a lot of pros and cons to taking this path to preserve and protect art, some of which we’ve discussed previously. Even once you decide to make a donation in principle, there are additional things to consider about how to best give your gift so that both parties’ expectations are met. Although it may seem pretty straightforward, it is a complicated step and should only be undertaken with a lot of foresight and guidance from experts who can help you or your executor make appropriate decisions.

So what can go wrong? A frequent problem is that many who donate artwork do so with the belief the art will be shown forever. Unfortunately, too often a donor or his/her heirs have been disappointed to discover the artwork is being stored instead of on display or was sold by the charity to help pay for the charity’s own administrative costs. Essentially, the desires of the donor did not match the desires or needs of the charity. To avoid or mitigate the chance of this happening, here are 5 tips for gifting your artwork:

1. Document in writing what you want for your artwork. Prepare a statement of intent explaining what you would like to happen when you donate your pieces. This will help future generations to better understand what you intended for your artwork and can help reduce the likelihood of costly legal challenges between the donee organization and your heirs when the heirs believe the donee organization is doing something other than following your wishes.

2. Ask a lot of questions of the charity. The most important thing is to be realistic about what you are trying to accomplish and to ask a lot of questions up front before choosing a charity. For example: What is the organization’s intent with regard to the artwork? When will it be displayed? Do they have other similar pieces? Are these other pieces of better quality? Do they foresee the artwork ever being sold? Are they willing to take the entire collection? These are just some of the questions, but depending on what the donor is looking for there may be others. Building a relationship with the organization(s) to which you are looking to donate your collection is also helpful in understanding their needs and interests.

3. Investigate the financial status of the charity. If you want the art to be on permanent display, then think about the size of the charity you’ve selected. If you don’t want your works to be sold, then look at the finances of the organization or perhaps set aside a cash endowment to go along with the gift. Additionally, you may want to purchase a life insurance policy naming the charity as a beneficiary thereby providing the charity with a larger endowment then a straight gift of cash. By providing this additional gift of much needed funds, you will have more bargaining power when you decide that you don’t want to give the artwork on an unrestricted basis.

4. Prepare a Gift Agreement. Many donations are made on an unrestricted basis, giving the charity full reign to do what it pleases with the art. This is the type of gift that organizations seek out the most. However, you may want to place some restrictions on the usage of the art and preconditions before you make the gift. If this is the case, you’ll want to have these discussions early on with the charity and then properly document it in a Gift Agreement. The Gift Agreement is a legal document detailing the aspects of the transaction and clearly states the expectations and understanding of both the donor and the receiving charity.

5. Consider the tax consequences. It is very important to have the arrangement properly explored and drafted to take into consideration the very complex tax laws that apply to gifts of a non cash nature such as art. An expert who has knowledge of structuring deals to gain the highest degree of tax efficiency is essential. It is important to understand in this respect that tax laws give deduction preferences to public charities and private operating foundations over those made to non-operating foundations. So for tax purposes who you select to receive your art is critical to achieving the highest deduction. In a future post, we will discuss the differences in the types of charitable foundations that exist.

The act of gifting a piece of art is not so simple. Make sure you understand what you want to happen with your artwork and work with a team of experts along the way. They will help you make sure your desires are fulfilled and properly coordinated into the rest of your wealth plan.

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