The Democratization of Art and Its Impact on Family Offices

Author: Mary Elizabeth Klein

What do single family offices need to understand about the democratization of art and its impact?

In this white paper, expert Mary Elizabeth Klein, CPA/CFO of Littleton Park shares the most important things for a family office to understand about art collecting

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What begins as a passion and personal connection to artworks by an individual, in reality, extends beyond being a personal interest. It is an important investment class to be monitored and continuously evaluated along with other significant asset classes such as real estate holdings. “Art transactions have recently accounted for over $60 billion annually.” Art prices have increased 50 to 100 percent over the past 50 years. It is estimated that over $3 trillion worth of art is held in private collections.

The trend for increased transparency and accessibility to the art market through online technology, art dealers and galleries, auction houses and art fairs requires collectors to seriously consider art on their balance sheet and in their financial and tax planning. This growing trend of the “democratization” of art also demonstrates a growing public interest in and awareness of art. It can be viewed as an opportunity for Family Offices to promote their philanthropic vision through private museums, which can also benefit long-term family wealth goals. Culturally, such a strategy enables a family to share conversations about art not only amongst themselves and artists but also with the public.

This white paper presents perspectives on art held by Family Offices through the lenses of investment, tax, financing, legal and market advisory experiences. It suggests the importance of strategic and tax planning early once a decision is made to invest in art as a collector or investor. Without such planning, families can face inadvertent tax and economic leakage that unnecessarily deteriorates their wealth and weakens familial bonds. These developments imply the need for Family Offices to focus on art as an investment class, including all of the associated risks and rewards of ownership.

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