The tip of the iceberg: Estate planning and stolen art
After having dozens of pieces of art seized from its collection in recent years amid scrutiny over looted art, New York’s Metropolitan Museum of Art is forming a team to scour its collections for items suspected of having been stolen in the past.
In the first five months of 2023, more artworks have been seized from both public museum collections and private clients and dealers. The sheer number of items listed on the various stolen-art registers — 700,000 at the Art Loss Register alone — is staggering. Even if a private collector purchased the artwork from a reputable dealer or inherited it decades ago, it is still subject to seizure and repatriation.
The likelihood that collectors may not have good title to their artwork is so high that the status of these assets should be taken into consideration when creating an estate plan.
Besides the risk of losing the artwork by having it seized, there are also significant financial and tax implications for the collector’s estate. Having to pull artwork from an auction means that the estate has much less liquidity to meet potential estate tax and administrative costs as well as specific bequests.
In one case where a World War II veteran had stolen artwork from a church in Germany right after the war — discovered by his family after his death — the Internal Revenue Service included the fair market value of the looted artwork in the veteran’s estate for estate tax purposes, even though the work was seized and repatriated to the church from which it had been stolen.
Determining the exact extent of stolen or looted art in the United States is difficult due to the illicit nature of such activities and the lack of comprehensive data. The trade of stolen art is a global issue, and works stolen from various countries will find their way into the legitimate art market. This trade involves a network of underground dealers, clients and criminals.
Throughout history, looting has occurred during times of conflict, colonialism and war. This includes instances where cultural-heritage objects, including works of art, have been plundered from their countries of origin. The looted art can be smuggled and sold in various markets.
The result is that the collections of many museums and cultural institutions in the United States contain artwork that was purchased, acquired or donated without proper regard to provenance to ensure that the work was not acquired through illicit means. The art market is generally unregulated and opaque, though efforts have been made to regulate it to prevent the circulation of stolen artwork.
Protecting a client from the effects of owning stolen or looted artwork means either that the prior owner’s rights have been extinguished or that the estate plan has a contingency for such an eventuality.
Although no statute of limitations exists for prior owners to claim title to stolen or looted art, a client can get what amounts to good title to the artwork against the claims of prior owners through the doctrine of laches. This doctrine considers whether, on balance, the efforts of the client to safeguard his or her rights to the artwork, and the injury the client would incur if the work were now recovered, outweighs the efforts of the prior owner to recover the artwork if that owner hasn’t informed the art world of the loss, and the owner neglects to enforce his or her rights once the location of the artwork is uncovered.
The level of due diligence on the title to artwork is, for all but the wealthiest clients, unaffordable, since the research may cost more than the artwork itself. Due diligence means more than accepting the seller’s word on the provenance of the artwork. It requires researching the artwork on registers such as the Art Loss Registry or the FBI Art Theft Program. There are also specialty firms such as Winston Art Group that provide due diligence for artwork for a fee.
If the defense of laches fails, then it is worthwhile to consider other options. For example, many heirs of former owners who realize that the artwork cannot be divided equitably among multiple heirs are not averse to selling the artwork and dividing the proceeds with the client or their heirs. Alternatively, you can set up the gift in either the will or the trust so that the fiduciary can disclaim the artwork and have it go to a charity. That way, even if the artwork is repatriated, you are not increasing the taxes on the estate by the fair market value of the artwork.
So be aware that a collector may not have good title to all of his or her artwork and collectibles — and where there is one suspect item, there are likely to be more. It may be just the tip of the iceberg, and without due diligence and having a Plan B in place, your estate plan just may founder.