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Philanthropic Vision through Museums
 Chapter 4 of 4

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Philanthropic Vision through Museums (Chapter 4 of 4) I wrote this white paper for the Family Office Association. For online reading purposes, this white paper is divided into 4 chapters. There’s a link back to Chapter 1 at the end of this chapter. 
 Philanthropic Vision – Public or Private Museums Through museums, families can contribute to society’s cultural tangible heritage as well as promote their legacy. “Museums are like libraries…they add to the basic knowledge of and represent the highest aspirations of mankind.”1 The choice as to donating to a public museum or starting a private museum depends on a variety of factors, including whether the collector is charitably inclined. The chart below presents considerations of charitable giving to a private or public museum:

de Montebello, Philippe, speaking at and receiving “The New Criterion’s Edmund Burke Award for Service to Culture and Society,” April 26, 2017. 1

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BENEFIT COMPARISON OF ART CHARITABLE GIVING TO PRIVATE VS. PUBLIC MUSEUMS PHILANTHROPIC FACTORS

PRIVATE MUSEUM

PUBLIC MUSEUM

Philanthropic Factors Family Office Legacy and Branding Cultural Education for Public

More

Less

More Specific Impact

Dictated by Museum Preferences

Wealth Preservation Factors Control

More

Less

Tax Efficiency

Deductions at lower rates; no capital gains

Deductions at higher rates

Costs

Higher operating costs but deductible

Solicitations for donations to fund operating costs

Philanthropic Factors 1. Family Office Legacy and Brand Collectors may preserve legacies, promote their vision and expand cultural outreach to the public by starting their own private art museums. Private art museums can become brands for donors, such as The Isabella Steward Gardner, Phillips Collection or Frick museums. This also is a way to bring families meaningfully together across generations through a common bond. Further, collectors can deduct the value of their art and ongoing operating costs for federal income tax purposes. Tom Hill is a recent example of a collector creating a private operating foundation in New York City in 2017. The foundation will host shows of his family’s collection of 20th century and contemporary art as well as Renaissance Baroque bronzes. The Hills plan to partner with the Frick Museum, the Studio Museum in Harlem, and the Metropolitan Museum of Art to run arts education programs for New York City school children in their

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new exhibition space.2
 2. Cultural Education for Public Museum mandates include educating the public about art and collections. This typically occurs through tours, museum programs and art exhibitions. Private museums provide art patrons with the advantages of a more specific focus, control, and impact on culturally educating the public. Javier and Lorena Lumbreras exemplify harmonizing finance and culture through their vision of creating COLLEGIUM, one of the first museums to integrate the cultural and economic structures of its locality with its values and operative system. Designed by acclaimed Mexican architect, Tatiana Bilbao and scheduled to open in 2020 in Arevalo, Spain, COLLEGIUM will become the permanent home of the Adrastus Collection, which comprises over 600 artworks by 150 artists from five continents curated by Patrick Charpenel. The Charitable Museum Endowment Fund, an open-ended art hedge fund, is the investment vehicle behind the project to reduce or permanently eliminate the museum’s dependency on its founders’ resources. “Museums are becoming more than mere places to exhibit objects. Nowadays, they act as agents of change and development in the community through the creation of innovative program, stimulating projects and education events that encourage social well-being.”3 
 Wealth Preservation Factors 1. Control The Collector has less control over what is shown in a public museum, and art works could wind up in storage due to limited exhibition capacity or changes in public taste. Financial control also is under the authority of public museum resources. The Collector may not only be required to make sustainability donations to fund museum operations but also need to consider the possibility of protecting donated art from sale in the event of bankruptcy. To retain more control with gifting to public museums, fractional gifts can 2

Woodham, Doug, “Art Collecting Today,” Pg. 142, Allworth Press, 2017.

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Deloitte, “Art & Finance Report 2017”, Pg. 134

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be made. Art is valued at and capped as of the date of the donation, and the museum takes full ownership after 10 years. 2. Tax Efficiency As previously discussed, there are tax benefits to a collector when art is donated from a collection to a public charity or private operating foundation. There are greater tax benefits when the art is related to the intended charity’s purpose, such as a public or private museum. An art foundation4 can be an effective tax structure in that it does not have to pay capital gains taxes for any gains it realizes as part of any future sale. Art foundations generally are not subject to state and local sales taxes for purchases. 3. Costs There are costs associated with running a private operating foundation. The costs for conserving, caring for, storing and insuring the art can be deducted including the cost to design and construct the building.5 The Rise of Private Art Museums A study by Larry’s List on private art museums in 2016 indicated that the formation of private art museums is on the rise. The study identified 317 private contemporary art museums globally in 45 countries of which over 70% were founded since 2000 and 20% were opened in the past five years. Globally the United States of America ranked second in number of private contemporary art museums with 43 behind South Korea and followed by Germany and Italy. Additionally, from the perspective of cities, Miami ranked second with eight museums and New York eighth with five museums.6 Whether the collector chooses to donate to a public or private museum, it’s important to remember that approximately 90% of art in public museums came from private collectors. This is another way for art to be democratized and made available to a wider An art foundation is a private operating foundation that dedicates the majority of its resources to conducting tax-exempt activities. It must meet the IRS’ income test and asset, endowment, or support tests. Horwood, Richard M., Civic Research Institute, Inc. “Being ‘Tax-Wise’ When Managing an Art Collection,” Journal of Taxation of Investments, Winter 2016. 4

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Cohen, Patricia, “Art Collectors Gain Tax Benefits from Private Museums,” 2015 (9).

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Larry’s List, “Private Art Museum Report,” Modern Arts Publishing, 2016.

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audience. A dramatic illustration of this is the recent 2017 purchase of Salvator Mundi, a recently discovered Leonardo da Vinci art work, by Saudi Arabian Prince Bader bin Abdullah. As the most expensive painting sold at auction for $450 million, the anticipated future home of this piece will be the Louvre in Abu Dhabi. Summary and Conclusion With the growing transparency of art through democratization trends, Family Offices should consider art as more than a personal interest and treat it as an investment. There will also be an increasing role for Family Offices to fulfill as it relates to sharing their vast collections with the public. Significant wealth, as well as a zealous personal investment, may be concentrated in an art collection. Therefore, it is prudent to plan ahead to avoid unintended tax consequences or deterioration in value. Strategic art planning also presents an opportunity for families to develop the vision for their legacy together through art philanthropy. Collectors need to have a legacy plan for their art collection and ideally their families should be part of the process of creating it. The following considerations are important: • Assess the family’s goals and attitudes towards the art collection •

Understand collection value and risk

Determine a collection dispersal plan independent of taxation7

What begins as passion for an art collector can strengthen and maintain family relationships through multiple generations. Beyond its value as a medium of universal expression, art can build and sustain family identity through shared legacy, philanthropy and cultural heritage. Link to Chapter 1
 


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Woodham, Doug, “Art Collecting Today,” Pgs. 145-6, Allworth Press, 2017.

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About Family Office Association:
 


Family Office Association is a global community of ultra-high net worth families and their single family offices. It is committed to creating value for each family that we serve; value that grows wealth, strengthens legacy, and unites multiple generations by speaking to shared interests and passions. About the author:

Connect with me on LinkedIn Mary Elizabeth Klein is a Family Office and Private Equity Executive providing sustainable solutions for businesses. Mary has extensive experience in building profitable businesses and developing relationships through strategic operational and tax execution and technological improvements. She is passionate about positioning organizations to emerge successfully through change by establishing structure and a foundation to stabilize them and expand their platform for growth. 


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The Democratization of Art - Mary E. Klein - Ch.4  

Through museums, families can contribute to society’s cultural tangible heritage as well as promote their legacy. “Museums are like librarie...

The Democratization of Art - Mary E. Klein - Ch.4  

Through museums, families can contribute to society’s cultural tangible heritage as well as promote their legacy. “Museums are like librarie...

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