Beyond the Canvas: Strategic Planning for Art Collectors

In this month's Wealth Planning Insights, William Heuseler, Global Head of Wealth Planning, addresses the art market, which, although not very common, has been attracting more and more investors. In the video, you will understand the aspects of wealth planning that need to be considered in the acquisition, maintenance, and transfer of art collections.

Main highlights:

• Legal Structuring: the decision between keeping the collection as an individual or a legal entity is fundamental. Opting for a legal entity can simplify administration and the succession process, and changes in the collection do not require monitoring and reporting in the individual's income tax. However, when the artworks are owned by a legal entity, it may be necessary to establish deposit, lease, or loan agreements for the individual to use them.
• Tax Implications: taxation varies between individuals and legal entities. For individuals, any income, such as renting the artwork to third parties, is taxed as income, while amounts obtained from sales are treated as capital gains. For legal entities, the effective tax burden depends on various factors, including the nature of operations, the respective accounting records, and the choice between the presumed profit or actual profit tax regime.
• Nationalization of Foreign Artworks: importing artworks requires special attention. It is necessary to declare the artwork, pay the due taxes (such as Import Tax, PIS, COFINS, and ICMS), and follow an administrative process that involves, among other things, registering the buyer in the Federal Revenue's RADAR system and submitting all necessary documentation.
• Importance of Legality: proper importation and declaration of artworks are crucial not only to avoid fiscal and criminal issues but also to ensure the possibility of future sales, as buyers and auctioneers will verify the provenance of the artwork.
• Succession Planning: transferring an art collection involves unique challenges, including the sentimental value of the artworks and the individual preferences of the heirs. An external appraisal is necessary to determine the patrimonial value and calculate the taxes due in succession.
• Prevention of Family Conflicts: in the case of maintaining artworks as an individual and lacking specific provisions in the will, it is possible that heirs may not agree on the appraisal method or the division of an art collection, potentially resulting in a co-ownership situation that can harm family harmony. Therefore, it is extremely important to include the art collection in your wealth and succession planning.

Watch the full video below: