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In partnership with Goldman Sachs Private Wealth Management
  1. Goldman Sachs Private Wealth Management
December 1, 2022updated Dec 12, 2022

Demystifying the Complex World of Art Collecting

Whether you’re looking to build or bequeath an art collection, you must understand the ins and outs of this complex asset.

By Elite Traveler

While pandemic lockdowns certainly impacted footfall at museums, galleries and auction houses, the art market has not only recovered – but thrived. In 2021, global auction sales from Christie’s, Phillips and Sotheby’s stood at $12.6 billion, 2.3% higher than the previous high-water mark set in pre-pandemic 2018. 2022 is also posed to be a record year, with global auction sales from the same auction house triumvirate totaling $7.4 billion in the first half of 2022.

Several factors have contributed to this market surge. First, demand has increased as a flood of new buyers have entered the scene, many looking to start building their own personal collections. During the pandemic, not only did people have time to explore new interests, but they spent more time at home (or moved into new homes) and began paying more attention to what was (or wasn’t) on their walls. This naturally led to their scouring the web for artwork being offered by galleries and auction houses around the globe.

 “Major auction houses reported that in some cases, up to 40% of their bidders were entirely new clients,” Monica Heslington, head of the Goldman Sachs Family Office Art Advisory, says of last year’s boom in sales. “Many of these new art enthusiasts are millennials or from Asia, where the market is rapidly growing.”

Another factor behind the strength of the market has been the exceptionally high calibre of artwork coming to the auction block. Given that collectors are almost always willing to pay top prices for top-tier pieces, even during economic downturns, a steady supply of quality artwork is the key to a healthy market. The Macklowe Collection, which sold for $922 million at Sotheby’s over the course of 2021-2022, was the most valuable private collection ever sold at auction. With the announcement of Christie’s November 2022 sale of Paul Allen’s collection, estimated at $1 billion, many expect that record will soon be broken.

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Seeking the input of experts is the key to building and managing a collection

“The art market is not always transparent and welcoming to newcomers,” says Heslington. “The most rewarding part of my day is having “Art Market 101” conversations with our clients, where we educate them on the intricacies of the art market and provide them with access to best-in-class experts who will be invaluable for each stage of their journey.”

Many collectors focus on engaging art experts to assist in sourcing, price research and negotiations, condition checks, and other logistics around acquisitions. However, it is equally important to have advisors who understand the differences between art and other assets and can help navigate the complex approaches to tax and estate planning that are required by an art collection.  

“Art and collectibles are emotionally charged assets,” explains Heslington. “Collectors love their collections and receive nonfinancial dividends from living with and enjoying their artwork. These benefits can outweigh potential tax savings. For example, in certain jurisdictions it might make good tax sense to annually donate artwork to a museum for an income tax deduction, but collectors who adore living alongside their art may have no interest in doing this.”*

“The same goes for lifetime transfers to family members, which might be an effective estate tax play, but is unappealing to a collector who doesn’t want to give up total control of a beloved artwork.”

Collectors must also stay abreast of a fluid and fast-evolving tax and legislative landscape. The current U.S. federal long-term capital gains rate for art and collectibles is significantly higher than the rate on other assets like stocks and art sales are also subject to an additional federal investment income tax surcharge. State-level income, sales and use taxes also need to be considered.

For those closer to the end than beginning of their collecting journey, further complications can arise when it comes to passing these assets on to the next generation, requiring honest, open dialogue, education and expert consultation.

In some cases, for example, children may not hold the same interest and enthusiasm for a collection as their parents. “This can result in potentially uncomfortable conversations during the estate planning process,” says Heslington. “Children often end up liquidating the collection. Their lack of knowledge and interest in the art and collectibles markets can be a disadvantage when selling the collection, where the margin of error is greater than when selling a stock or other asset. Many of the conversations I have with clients address future sales strategy, so that proceeds aren’t inadvertently left on the table.”

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It’s a great time to get started

Heslington believes this is a particularly exciting time to collect art, especially given the heightened focus on and exposure that is being given to female, BIPOC and other underrepresented artists. “Milk of Dreams,” the title of this year’s Venice Biennale, one of the most important art events on the global cultural calendar, was inspired by British-born Mexican surrealist Leonora Carrington, “whose work until recently was overshadowed by her male peers.” Also at this year’s Biennale, Simone Leigh became the first Black American woman to represent the U.S. at their Pavilion. Yayoi Kusama, Joan Mitchell, Faith Ringgold and others, are among a growing group of women artists beginning to receive the recognition they’ve long deserved through major museum exhibitions.

Given the art world’s pivot to online platforms during the pandemic, there also is more easily accessible information available to collectors than ever before. This is crucial, as in the art world, knowledge is power.

More broadly, there is a newfound sense of energy and excitement in the art scene as a whole. “By far the most thrilling development is how excited people have been to experience art in real life again,” says Heslington. “People have discovered that seeing art on a screen doesn’t equate with the profundity of experiencing it in person.”

*Goldman Sachs does not give tax advice and strongly urges investors to consult with their own tax advisor

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