"The Art of Collecting" podcast - Episode #7: The art of transfers and donations
Laurent Issaurat: Hello, my name is Laurent Issaurat, Head of Art Banking at Societe Generale Private Banking, and I am pleased to welcome you to our podcast series “The Art of Collecting Art”. Each episode, we will explore issues involved in owning and managing artworks and collectors’ items. Today brings us to the end of our series. In this seventh and final episode, I am joined by Marceau Clermon, Notary-in-Partnership at the Fidnot notary office, who will share with us his expert insight on the transfer and donation of an artwork or a collectors’ item. Hello Marceau.
Marceau Clermon: Hello Laurent.
Laurent Issaurat: Are artworks and collectors’ items just another kind of furniture?
Marceau Clermon: It may seem counter-intuitive, but they are not always seen as moveable items. Some works may form part of a building — sculptures set into the building or certain mosaics, for instance. The mosaics by INVADER(1) found on walls in numerous capitals also come to mind. You then have what is called “furnishing furniture”, those that are built into homes, as defined in the French Civil Code. This is where the categories overlap. Not all artworks are “furnishing furniture”; and not all items of moveable property are artworks. Article 534 of the French Civil Code excludes the following from “furnishing furniture”, and I quote: “collections of paintings which may be in galleries, or private pieces.” Barring this reserve, and irrespective of their value, artworks can legally fall under the “furnishing furniture” category.
Laurent Issaurat: In terms of documentation, because artworks are very often considered as an item of furniture, there is often no record of their ownership, not even invoices, for instance. What would be your advice?
Marceau Clermon: Indeed, many owners of artworks or pieces think that possession alone gives legal title and the protection that goes with it. Other than demonstrating physical ownership of the object, it is essential to keep a record of all evidence of its acquisition, such as a sales receipt, proof of payment, bill of entry, copies of correspondence the seller, etc. While all this seems good common sense, the reality is far more complex... especially if the object became came into the holder’s possession as part of a transfer. While they may have the key documents that attests to an item’s authenticity and are used for valuation purposes, often there is no proof of ownership. Statements of inheritance, donation, or sharing of ownership do not constitute legal title, even though such documentation can serve as prima facie evidence or presumption of lawful possession. Some beneficiaries may claim ownership of artworks by taking action to establish title, which is made easier when the holder is without documented evidence. My advice would be to obtain statements of ownership from all parties, official reports from the bailiff, or declare these statements in registered deeds.
Laurent Issaurat: How does one transfer art assets to one’s children or grandchildren? Is it possible to legally divide the ownership of an artwork by differentiating between bare ownership and right of use?
Marceau Clermon: To transfer artworks or objects to future generations, it is possible to donate full or bare ownership(2). Full ownership gives descendants the right to own, use, and earn income from an asset. Such donations ensure an indisputable title of ownership. Accordingly, if the piece is sold at a later stage, it will meet the conditions for a capital gains tax exemption for the duration of the holding period. Known as giving inter vivos (“donation-partage” in France), the donor can, in their lifetime, share their wealth among the heirs of their choice. Today, in early 2022, donors can use inter vivos gifts to divide their estate down the generations for the purpose of reincorporation (donation-partage trans-générationnelle-réincorporative). Under this scheme, the artworks or items “roll” from the donor’s children, to their children’s children, depending on the initial donor’s preference. The registered donation must have been registered for over 15 years, and the tax cost is thereby reduced to partition duties of 2.5%. All these arrangements apply as per the usual legal and fiscal conditions.
Laurent Issaurat: There is also the case of gifts in the traditional sense, be it for events such as weddings, births, or birthdays. Gifts from hand to hand — a donation handed over by the donor in their lifetime — also come to mind. What are the advantages of an inter vivos gift as opposed to other forms of transfers which seem more straightforward?
Marceau Clermon: From a legal and fiscal standpoint, traditional gifts have the disadvantage of being difficult to trace. If there is an objection, no proof means no rights! It's the cause of many family disputes, for possession alone does not constitute ownership. Gifts from hand to hand are generally recognised for tax purposes. However, this in itself is not proof of the donation having taken place, as the declaration is made only by the beneficiary of the gift. We therefore recommend obtaining documents from the donor that the gift is not a loan but a donation, for this too is cause for dispute. Notarial deeds are all the more important when donating artworks or collectibles, for they express the intent to donate, while providing an accurate description of the object. Inter vivos gifts also offer the security of avoiding economic rebalancing upon the death of the donor where there are more than one heirs. Given how volatile the value of art can be, this is a very sound precaution.
Laurent Issaurat: Is transferring artworks to a company another option?
Marceau Clermon: Yes. Placing works of art in a company opens up new possibilities with respect to holding or transferring art. In the past this was a fiscal barrier, as privately-held works of art were exempted from wealth tax while company shares holding art were not. Entrusting artworks to a company is also a way for living artists to organise their estate, and even benefit from the advantages of the Dutreil scheme(3) for transferring businesses.
Laurent Issaurat: How are art assets valued during a succession?
Marceau Clermon: The market value of the assets must apply and can be determined by a number of ways. It can be based on the prices observed at an auction sale within two years of death. It can also be based on the estimates of an auctioneer as part of a notarised inventory, or on the individual value of objects established in insurance policies. Should the artworks or pieces be considered “furnishing furniture”, the flat rate for moveable objects can be used. In this respect, the value of the moveable asset counts for 5% of the total value of the real estate or moveable assets. That said, the French tax code allows the submission of contrary evidence to tax authorities: from a legal standpoint, if it can be proven that a masterpiece painting is part of the furniture and furnishings of a home and that, from a tax perspective, the moveable assets are worth more than 5% of the total value of the estate, the flat tax can be ruled out.
Laurent Issaurat: Thank you Marceau for your clear and precise explanations on what is a technical topic. This brings us to the end of the “Art of Collecting Art”. It was a pleasure to explore with you the broad strokes of owning and managing artworks and collectors’ items, with the help of our expert guests. You’ll find all our episodes on Apple Podcasts and Spotify via our programme “#PrivateTalk by Société Générale Private Banking”. Thank you for tuning in, and until next time for new podcasts from Societe Generale Private Banking!
(1) The French street artist INVADER created a series of mosaic tile “Space Invaders” in cities all around the world.
(2) The right of an owner to dispose of property, without being able to use it, without having the enjoyment conferred on a usufructuary, or to derive rental income from it. The bare owner can sell his right of ownership, without selling the enjoyment of the property. Source : https://www.service-public.fr/particuliers/vosdroits/F33076
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