The 2017 U.S. Trust Insights on Wealth and Worth survey compiled the responses of over 800 high-net-worth individuals to develop insights on investing, work and family life, philanthropy, and art collecting. Among its many findings, the study documents the changing demographics of art collectors and their evolving collecting philosophies.
As we look toward 2018 and think about the ways in which the art world is shifting, we asked two experts from U.S. Trust, Drew Watson, Vice President, Art Services Specialist, and Ramsay Slugg, Managing Director, Wealth Strategist in the National Wealth Planning Strategies Group, to elaborate on several of the report’s conclusions about art collecting.
We collected their insights below, which touch on all areas of collecting, including generational differences in art preference, legacy issues that can arise when executing estate planning, and how art can be leveraged as an asset.
What are the key differences in the way men and women collect art? What are the potential ramifications of those differences?
Drew Watson (DW): Our survey revealed that women are more likely to be art collectors than men. In fact, one in five high-net-worth women is an art collector. Although women are more likely to collect art, men are more likely to actually buy art, and are eight times more likely than women to unlock capital from their art collection with an art loan. Men tend to be bigger drivers in acquiring art or leveraging a collection to build overall wealth. Women, on the other hand, are twice as likely as men to inherit art. They tend to be the key decision makers regarding the disposition of art collections.
Demographics of those who collect art or are interested in collecting
Millennial collectors have rapidly claimed market share among collector demographics in recent years. How will the increased prominence of this younger demographic affect the art market?
DW: Millennials are a large and growing segment in today’s art market. One in four collects fine art—more than any of the three prior generations—and an additional 43% has an interest in starting a collection in the future. One of the most salient ways that Millennials are currently shaping the art market is their readiness to transact digitally: nearly seven in ten have bought art online. In addition to representing an active buyer segment, Millennials will be important future drivers of supply coming to market as nearly one-quarter of Millennials expect to inherit art from a family member.
What drives collectors to buy art?
How are collecting philosophies diverging across gender and age designations? What are the different reasons Millennials, Gen X-ers, and Baby Boomers collect art?
DW: Across generations, the top reason for collecting art remains its aesthetic value. This is especially true for Baby Boomers, 84% of whom collect art for this reason. Though aesthetics are still their leading motivator, Millennials and Gen Xers also collect for other reasons. These younger generations are more likely to see art as an asset. They also enjoy being part of the community of artists and, to some extent, view collecting art as a visible sign of wealth and success.
How can these differences play into what types of art people of each generation collect? How might the so-called “great wealth transfer” between Baby Boomers impact these philosophies?
DW: That Millennials collect predominantly Post War and Contemporary art is consistent with their view of art as an asset with both economic and social capital. With the impending “great wealth transfer,” Millennials stand to inherit billions of dollars’ worth of works from other collecting categories, most likely Impressionist and Modern, which is still the primary focus of art collections across generations. Some of the art will be retained in the heir’s collection, but a significant amount will be sold because of differences in generational and personal collecting preferences.
What issues are important to discuss with family members when organizing and executing estate planning that includes art works? How can collectors facilitate these discussions?
Ramsay Slugg (RS): The big question is, does the next generation share the same passion for the art as the collecting generation? They may or may not, and increasingly, we are seeing it is the latter. It may be that the next generation loves art, but of a different collecting category. Or it may be that they don’t have the resources, physical space, or lifestyle to properly care for and display the art. Whatever the outcome – and there is no right or wrong answer – it is imperative to know whether they want to continue the collection with the same passion and care as the collecting generation.
What do collectors plan to do with their art?
What are the options for those who have art as part of their estate if their familial heirs don’t want to care for their collection?
RS: The simplest option in this case is selling the art. If that option is chosen, it is best from both a tax perspective and a non-tax perspective to wait until the death of the collector. That minimizes the overall tax bill, and also allows the collector to continue to enjoy their collection for the rest of their life. That answer may change if and when tax reform currently under consideration is adopted, but a sale is better at death than during life for now.
The other big option is to give the collection to charity. That sounds simple, but it is actually much more difficult than one might suppose. A number of tax rules must be taken into account to ensure that the maximum tax benefit is achieved. Just as importantly, it is critical to discuss the donation with the recipient, even if that will not take place until after the death of the collector.
Given that the majority of collectors built their art collections rather than inheriting their works of art, what educational resources are available for those looking to expand their collections? When and where would you suggest they purchase new pieces?
DW: When looking for art to purchase, most collectors rely on traditional methods of discovery: in-person visits to galleries, art fairs, auction house viewings, and museums. From there, they begin to develop relationships with museum curators, auction house specialists, gallerists, and sometimes professional art advisors, who can provide them with advice on what and how to buy.
With the advent of auction price databases, digital sales platforms, and even AI-powered recommendation engines, one in three art collectors now browses for art online. Millennials are more apt than other collectors to follow social media (notably Instagram) and to read art magazines, a reflection, perhaps, of their engagement with the art community and influencers, and twenty percent have a professional advisor who helps them discover art.
Whether in-person or digitally, the important thing is to look at as much art as possible, start to follow artists of works that interest you, and seek out advice from a variety of industry professionals with diverse points of view.
In what ways is incorporating art into wealth planning to the benefit of collectors?
RS: For many collectors, art has come to represent a significant portion of their assets. For that reason, any tax or financial plan should take both the value and the nature of those assets into account. Failure to include those assets in an overall plan will likely result in tax, economic and, most importantly, familial issues.
What are some reasons individuals who collect art may want to leverage their works? When should they consider leveraging works from their collections?
DW: Art tends to be one of the most under-reported and under-leveraged assets on collectors’ balance sheets. Once collectors have built a valuable collection, some seek to unlock capital tied up in what is effectively an illiquid, cash-negative asset while maintaining possession of the art to enjoy its aesthetic value.
The reasons that collectors unlock capital from their collections are perhaps as diverse as the underlying collateral. For example, hedge fund and private equity principals have unlocked capital from their collections to reinvest in their funds. Real estate developers have levered their collections to use as real estate development lines. Likewise, many business owners have used art loans as working capital lines. Art loans can also be a strategic tool in an estate planning context, provide liquidity to pay taxes, and facilitate philanthropic gifting. Last but not least, they can unlock liquidity to buy more art.
2017 has seen a rise in collectors borrowing against their collections. What are some of the primary reasons for this increase?
DW: As collectors continue to think about the role their art can play in the context of their financial lives (rather than the other way around), the geographical distribution of art lending has expanded beyond the traditional centers of the art market. Art lending used to be a New York, LA, and Miami story. Now we’re seeing demand from a wider variety of markets across the country. Collectors in these markets have recognized that the increase in collateral asset prices over past 15 to 20 years combined with a low interest rate environment create favorable conditions for leveraging an art collection.
Ramsay H. Slugg is a Managing Director and member of the National Wealth Planning Strategies Group at U.S. Trust. Previously, he was the National Practice Director of Bank of America’s Philanthropic Management group. He has also served as the Central Region Director of the Bank’s Charitable Management Services Group, and the Central Region Director of the Wealth Management Consulting Group.
Based in New York City, Drew Watson has over 10 years of experience in the art market, private wealth management, and arts nonprofit management. Drew leads national business development and operations for U.S. Trust Art Services, where he works with a team of specialists to offer art collectors and arts institutions a tailored suite of services including art lending, art planning, consignment services and nonprofit services.
Interested in more findings from the 2017 U.S. Trust Insights on Wealth and Worth survey? Explore the full study here.