WYWH: Introduction to Estate Planning for Artists in “Your Art Will Outlive You”

 

By Heather DeSerio

The subject of what life keeps in store for artists’ legacy when they are no longer around to protect their works is of increasing interest to auction houses, galleries, heirs and artists themselves. On January 11, 2017, the New York Foundation for the Arts (NYFA) in conjunction with the New York State Bar Association’s (NYSBA) Entertainment, Arts, and Sports Law Section (EASL) Committee on Fine Art and NYSBA’s Pro Bono Committees hosted an event, entitled “Your Art will Outlive You- How to Protect It Now,” which took place in Dumbo Brooklyn, New York. The panel of lawyers and art professionals presented a two-hour overview to artists and art professionals about what an artist can do to protect their work now, rather than wait until after they pass away.

screen-shot-2017-02-01-at-10-20-55-am

Source: Heather DeSerio

 

There were six key speakers: Judith B. Prowda of Sotheby’s Institute of Art, Carol J. Steinberg of Law offices of Carol J. Steinberg, Elisabeth Conroy of Edward W. Hayes, P.C., Declan Redfern who is a Partner at Kayser & Redfern, LLP, Peter Arcese, practicing T&E attorney and an Adjunct Professor at the NYU School of Continuing and Professional Studies, and Alicia Ehni, an artist and Program Associate at NYFA Learning. The majority of those in attendance were artists, with at least one conservator and a recorder for estate processing. NYFA, a nonprofit organization with a mission to “empower emerging artists and arts organizations across all disciplines at critical stages in their creative lives and professional/organizational development” created its own “Take Aways” for the event that can be found here.

While artists tend to shy away from legal topics, this sold-out event was clearly of interest and tackled such fascinating and complex topics as will drafting, estate planning for artists, establishing artist foundations, gifting artwork while living, copyrights, and forming artist cooperatives. The following is a summary of the discussion that took place.

  1. Wills

Elisabeth Conroy, an Associate at Edward W. Hayes, P.C., started the stimulating presentation on estate planning for artists by giving an introduction to what a will is and followed up by providing the requirements for a valid and enforceable will. The five requirements are that (1) the will must be in writing; (2) must be signed by the person whose will it is, which is called a testator and they must be 18 years old; (3) signed at the end of the will; (4) published, meaning that there is an acknowledgement that this is your last will and testament; and (5) at least two witnesses must sign in the presence of the testator within 30 days of one another. Additionally, she spoke about choosing an executor of the will, types of bequests, joint wills, how to store and update a will when major life changes occur such as marriage, divorce, and children. Conroy mentioned that while an attorney is not required to create a will, it may be a good idea because using an attorney to draft and execute a will creates a presumption of the will’s validity. She also highlighted the commonly overlooked importance of having a living will and a health proxy, because designating someone to make health decisions if a person becomes incapacitated is a good idea. She ended her remarks by recommending that people should execute a Health Insurance Portability and Accountability Act of 1996 (HIPAA) authorization so the person that serves as the health proxy will also have access to a person’s medical records to make important life decisions.

  1. Estate Planning for Artist- Trusts, Foundations, Fiduciaries, and Valuing Art

Peter Arcese is a trusts and estates practitioner who also serves as an Adjunct Professor at NYU School of Continuing and Professional Studies. He delivered quite an impassioned and intriguing presentation about estate planning for artists and why it is unique for artists. He highlighted various types of trusts that exist. Arcese repeatedly stressed the importance of appointing a qualified fiduciary. A qualified fiduciary means the fiduciary should understand what the artist’s intentions are and be competent enough to deal with auction houses, the artist’s family, lawyers, and accountants. Arcese also noted that a fiduciary should be savvy and knowledgeable enough to make decisions that are in the best interest of the artist and can deal with complex issues that may arise pertaining to funding the foundation and overseeing the administration of the estate. In addition, it is important that the fiduciary does not engage in self-dealing. This is so that the artist would avoid many problems that other artist foundations have faced such as was illustrated by the infamous Rothko case.

Art valuation is a complex topic that was briefly discussed on several occasions. Arcese told the audience about the important benefits of achieving discounts for the benefit of taxation of the estate when an artwork is sold. He pointed to the David Smith case and the DeKooning case.

One of the questions asked during the event was about the availability and reliability of art appraisals for lesser known artists. He responded that a person should try to find a highly qualified individual with a good reputation to appraise the artworks and give an estimate. This can usually be done by an auction house or qualified appraiser. There was no definitive clear answer to a follow-up question about whether the appraisals are correct, but, Arsece told the audience, “It should be based on the fair market value or what one would get at auction.”

Funding the Foundation:

Artist foundations have got their initial funding in ways such as:

  1. Borrowing money: The Adolph and Ester Gottlieb Foundation borrowed the first $10,000 to make grants and started with nothing else.

(*The Adolph and Ester Gottlieb Foundation was the first foundation to give money to artists.)

  1. Funded by select gifts of art to the estate to sell off, and the proceeds are used to help get the initial funding started.
  2. Facilitate exhibits of works in estate’s collection.
  3. Publish a catalogue raisonné of the artist’s works.
  4. Licensing of the copyrights in accordance with the artist’s wishes.
  5. Life Insurance Policy: The funds received can be directed to help fund the establishment of the foundation to help pay for the initial cost of the foundation.

During Arsece’s abridged discussion about artist foundations, he emphasized key points. First, how important it is for all artist to leave clear directions about what to do and directions that layout the vision for the foundation. Next, he pointed out that foundations can be created during the artist’s lifetime or created upon death. In conclusion, Arsece reviewed the types of foundations: there are public foundations, which are based on the corporation structure, and there are also private foundations that are run by family members or named individuals by the artist.

Many questions from the audience concerned matters of funding the artist foundation and tax issues. One question specifically asked if it is a good idea to create a trust to minimize taxation in comparison to having a will. The answer was a resounding yes from several the panelist that confirmed that a trust can save on taxes. There is a one-time credit that the IRS Code allows of up to $5,500,00.00 of the value of artwork that is not subject to taxation. This exempt amount of artwork can be set aside in a trust and will not be taxed again. The monetary value of artwork is determined from the date when the artist passes and the appreciation in value of the work is free of taxation. It is advised to consult an attorney that is experienced in setting up trusts so that they tailor the plan to accomplish whatever tax savings are best depending on the individual’s goals.

  1. Artist that Gift Artwork During Artist’s Lifetime

Declan Redfern, a partner with Kayser & Redfern, LLP, with more than three decades of Trust & Estates experience including litigation both in the U.K. and the U.S. Redfern drew upon his experience to illuminate another important aspect of artist devising their property during their lifetime by elaborating on the differences between gifting an artwork during the artist’s lifetime (inter vivos gift) and how the copyright exists separately from giving of the physical work itself. An artwork’s copyright does not automatically transfer just because the physical object is gifted to someone.

When a living artist gifts artwork to someone, there are three general requirements that must be established to prove that it was an inter vivos gift: First, there has to be an intent to divest the title by the donor, second the acceptance of artwork by the donee, and third, delivery of work from the donee to the donor. Once all three requirements have been established, then an inter vivos gift has been perfected and it is no longer part of the artist’s collection.

Redfern highlighted several issues with gifting. Each example indicated problems with trying to figure out what happened with the gift during the deceased artist’s lifetime when there was conflicting circumstances, conflicting documents, or the artist’s intent was not clear. These examples illustrate that it is imperative for artists to make their intentions clear in written document that clearly describes their intentions at the time when they gift is given and indicates what rights are intended to be gifted.

He concluded his presentation by talking about the Deadman Statute. It is an evidentiary rule that applies in court when trying to establishing if a gift was actually gifted because one cannot rely upon what a Deadman told a person. There must be documentation that is notarized by a disinterested party to defeat a Deadman Statute. This also helped reinforce the idea about getting things in writing and even notarized by disinterested parties so that a person can establish that an inter vivos gift was intended to be given by the artists and if any copyrights were granted with the inter vivos gift besides possession of the artwork.

  1. Copyright Law

Carol J. Steinberg, one of the organizers of the program as well as a speaker, discussed copyright law because these rights are important for artists to consider when a person is creating an estate plan for the artist’s artwork. She stressed the importance of understanding that the law grants artists six set of copyrights, which exists separately from the physical artwork itself. Under the Copyright Act of 1976 Section 106 the six different rights are:

  1. the reproduction right;
  2. the right to prepare derivative works based upon the copyrighted work;
  3. the distribution right of copies or phonorecords;
  4. the right to perform the copyrighted work publicly;
  5. the right to display the copyrighted work publicly; and
  6. for sound recordings, the right to perform the work publicly by means of a digital audio transmission.

Steinberg also informed the audience that artists can choose to retain or assign the six different copyrights independently from one another. The assignment can be done while the artist is still living or upon the artist’s death in a testamentary document that indicates the artist’s intentions for the artwork’s copyrights.

She tied it all together by mentioning that the copyrights are commonly administered after the artist death by the artist’s foundation or estate in accordance with the artist’s wishes as indicated in the artist’s testamentary documents. This is an important remark because with the rise of the internet there has been an increase in litigation involving issues such as the unlicensed reproduction, distribution, and creation of derivative works involving items such as a catalogue where the artwork is reproduced in a picture or a reproduction of the artwork is displayed on a picture on a website that features the artwork. Sometimes this occurs when owners of the physical artwork fail to realize that they need a license from the artist’s foundation or artist’s estate which are in charge of administering the artist’s copyright in a work of art after the artist is deceased. This licensing of an artwork’s copyright is necessary to ensure that another is not infringing on the artist copyrights that are still retained by the artist’s foundation or estate.  

  1. Artist Cooperatives

Alicia Ehni, the Program Associate at New York Foundation for the Arts, suggested to the audience of the program that artists should form cooperatives consisting of artists, curators, collectors, and other key players in the art world. This would benefit artists because it would  get their work seen by other professionals in the art world, which in turn gives them the exposure they need to potentially get placed in shows and museums. An increase in an artist’s visibility and prominence in the art world helps artists to increase their collectability and raises their value in the art market. A trickle effect results in more work being produced by an artist as they sell more work. Once an artist increases their work output, then there is a greater need for the artist to keep proper documentation about the work they produce and track the work’s provenance. This is because documentation is helpful in the art resale market and for authenticity. Unfortunately, artists and their foundations or estates are plagued with problems such as authentication of artwork, lack of documentation by the artist while they are living, and the need to generate income from the artist artwork to fund the artist’s foundation.

Authentication of artwork is a problem when there is a lack of record keeping performed by the artist during their lifetime. This is a highly controversial topic because artist estates and authenticators have faced several lawsuits about artworks that were improperly attributed to an artist that turned out to be forgeries. Thus, authenticators and artist’s estates tend to shy away from authenticating artworks since they do not want to be held liable for wrongly authenticating an artwork. One thing that could help with this authentication problem is for living artists to be proactive in creating a method of systematically documenting their artwork. This protective step is commonly overlooked by artists, which could create problems down the line because no one else is better qualified to determine which works should be attributed to the artist then the artist themselves.

An artist should regularly document their work by taking photos, creating a numbering system, record when an artwork is sold and to whom it was sold. Also, an artist may want to keep a list of where the artwork is stored or consigned, and provide information about the artworks materials and dimensions. Thorough records created during the artist’s lifetime would facilitate the artist’s estate management of the collection and distribution of the inventory if and when the foundation in charge of the works needs to sell authenticated works. Therefore, artists should be prudent and begin this practice at the beginning of their career to ensure their legacy is protected.

Conclusion:

“Establishing the Artist Foundation” is a vital topic in the art industry as demonstrated by the challenges encountered by high-profile foundations such as the Rothko and Warhol Foundations. Many artists, galleries, and auction houses are transforming their business strategies by incorporating artist management to help meet the needs of aging artists. Crassly put, dead artists are big business for sales, exhibits, and catalogue raisonnés. As mentioned by Robin Pogrebin in her New York Times article, “Decision Time For Aging Artist,” aging artists such as Chuck Close are beginning to think about planning for their families now rather than simply leave it to a gallery to manage their estate as artists commonly have done in the past. Artists are taking an active role in establishing a plan for their work to curtail many of the problems other artist’s estates and foundations have faced. In deciding how to develop a plan for the artist’s artworks the legacy, preservation, copyright, licensing, establishing an artist foundation, establishing a trust, and the selection of a qualified fiduciary are all important elements that merit additional education and planning to ensure the will of the artist is honored posthumously. The artist should consult a qualified and experienced attorney to establish a plan and guide them through the process of estate planning for artists.  

Select Sources:

  1. In re Rothko, 84 Misc. 2d 830, 379 N.Y.S.2d 923 (Sur. Ct. 1975), modified, 56 A.D.2d 499, 392 N.Y.S.2d 870 (1st Dep’t), aff’d, 43 N.Y.2d 305,372 N.E.2d 291, 401 N.Y.S.2d 449 (1977); on remand, 95 Misc. 2d 492, 407 N.Y.S. 2d 955 (NY Sur. Ct. 1978).
  2. Simon-Whelan v. Andy Warhol Found. for the Visual Arts, Inc., No. 07 CIV. 6423 (LTS), 2009 WL 1457177 (S.D.N.Y. May 26, 2009).
  3. Jennifer Maloney, The Deep Freeze in Art Authentication, April 24, 2014 available at https://www.wsj.com/articles/SB10001424052702304279904579518093886991908

About the Author: Heather DeSerio (NYLS, JD candidate, Class 2017) is a Spring 2017 Legal Intern with the Center for Art Law. In her studies, she is concentrating in Intellectual Property Law. Prior to law school, she worked as a fine artist and received a Bachelor of Fine Arts in Painting from Ringling College of Art and Design. She can be reached at heather.deserio@law.nyls.edu.

Spotlight: Arts Law Centre of Australia

Screen shot 2015-02-24 at 4.08.25 PMby Melissa (YoungJae) Koo*

From the Editors: Given that Center for Art Law has been keenly interested in the legal services available to artists not only within the United States, but also around the world, this time we would like to turn our attention to a unique organization in Australia that has been offering legal assistance to a diverse art client base on the other side of the world for more than 30 years.

 * * *

Australia has been a unique and dynamic place for art and the art market, albeit often overshadowed by giant markets of the United States, United Kingdom, and France. According to Adrian Newstead, Director of Coo-ee Aboriginal Art Gallery, collecting has been growing in Australia, especially centered around Australian Aboriginal art. The growth of secondary market of art sales backed by escalating online sales and overseas dealerships in Australia is also matched by signs of “revival in primary gallery sales and the spectacular success” of Australian urban artists such as Danie Mellor and Tony Albert. Recently, there is a movement among Australian Victorian art gallery owners to create a national peak body for visual arts galleries, spurred by the scandal over stolen antiquities at the National Gallery of Australia. Such recent reports of Australian art and art market news pose questions on the interests of creators of art in the country, known for its unique landscape especially surrounding the Aboriginal art.

As a not-for-profit, Arts Law Centre of Australia (“Arts Law”) is Australia’s leading independent center for the performing and visual arts, operating out offices in Sydney. Center for Art Law has reached out to Robyn Ayres, Executive Director of the organization via email. According to Ayres, Arts Law has been dedicated to empowering artists and creators, protecting their rights and helping to ensure they are fairly rewarded for their creative work since its establishment in 1983. The organization is akin to several state based nonprofit organizations in the United States that provide pro bono legal services to artists such as Volunteer Lawyers for the Arts in New York or New Jersey Volunteer Lawyers for the Arts, which we featured here.

Funding for Arts Law Centre of Australia comes primarily from various governmental as well as nongovernmental agencies. The Australia Council, the Australian government’s arts funding and advisory body, has been the leading financial backer of the organization. Other governmental sponsors include Australian State and Territory governments through their art agencies, Screen Australia, Department of Aboriginal Affairs WA, Screen NT, and Film Victoria. Non-governmental organizations such as Copyright Agency and Phonographic Performance Company of Australia also help funding for the organization.

According to their recently renewed website, Arts Law mainly provides artists and arts organizations with extensive resources and legal services of the range of arts related legal and business matters including but not limited to contracts, copyright, business structures, defamation, insurance, employment, and taxation. Ayres adds that Arts Law’s primary services are around providing such information for the creative communities through the information hub, which boasts rich in-house information such as a variety of legal information sheets and guides, seminar papers from relevant third parties, for example, the Australian Copyright Council, and sample agreements, case studies, eBooks, and videos to name a few. It also publishes a quarterly newsletter art+LAW.

With the team of 7 full-time and 5 part-time staffers, headed by Robyn Ayres as Executive Director, about 240 pro bono legal practitioners as well as a number of law firms located in all Australian States and Territories assist the organization in the provision of the document review service, and daytime volunteers such as law students, law graduates, and qualified lawyers also assist the team. Ayres stated that Arts Law also has an internship program for periods of 3 weeks to 6 months, which regularly takes interns from Australia as well as around the world including the US, Canada, and France.

Specifically, the organization provides legal advice to artists and arts organizations in two main ways: telephone legal advice sessions, either on pro bono or low bono schedule, and more in depth document review sessions available for subscribers. Similar to US-based volunteer lawyer organizations such as New Jersey Volunteer Lawyers for the Arts mentioned above, before providing legal services, the organization determines financial need of a would-be client through their means test. Individuals or arts organizations who do not meet the means test are asked to subscribe and pay a fee ranging from $140 to $500. Subscribers are entitled to two document review sessions and five telephone legal services in the twelve month subscription period, which are valued at over $4,200 Australian Dollars.

Following example illustrates how the organization’s volunteer lawyers help out artists in Australia. When a sculptor was shocked by a letter sent by a Sydney council asking him to stop working on his commissioned sculpture in front of a public library without getting paid, he contacted Arts Law to find out his rights. Although he communicated with the council about the commissioned work via emails, he did not have any formal written contract with the council. A volunteer lawyer from Arts Law advised him that even though there was no formal written contract between the sculptor and the council, it is likely that a binding contract exists between them from a number of documents, and oral and written conversations. During a document review session, the volunteer lawyer drafted a letter of demand to the council outlining that the council was bound by a contract and that it owed the artist money in exchange for the commissioned sculpture. Consequently, the council paid the outstanding amount to the artist.

Furthermore, the organization also offers dispute resolution mechanisms and referrals to accounting services. Ayres also mentioned that Arts Law provides a variety of educational programming throughout Australia, delivering more than 80 lectures, seminars, and workshops, including a webinar program. It also has been instrumental in developments such as the introduction of resale rights and moral rights in Australia, she added.

Arts Law also has been at the forefront of championing Australian artists’ rights with an extensive advocacy agenda on the basis of its “artists first” policy approach. According to Ayres, Arts Law submitted suggestions for changes to the Designs Act in Australia arguing that artists should not lose copyright protection of the work if it is industrially applied. Also recently in 2014, Arts Law argued against the Australian Law Reform Commission’s report on Copyright in the Digital Economy, which recommended amongst other things that Australia introduce a fair use exception in their Copyright Act, similar to the U.S. Ayres stated that the organization argued against such exceptions as it would “erode artists’ rights and broaden the scope for unlicensed use of artists’ works” and recommended that the “current fair dealing exceptions strike an appropriate balance.” See their response here. Also notably, Ayres stated that Arts Law does not agree with the current Australian resale royalty rights scheme as it is only payable on second sale after the law was introduced, rather than payable on all resales.

Perhaps most uniquely, a special program Arts Law offers is Artists in the Black, which caters specifically to Australian Aboriginal artists and Torres Strait Islander artists and art communities. The name “Artists in the Black” refers to an expression “to be in the black,” meaning to be financially profitable and not in debt, or not “in the red.” Introduced in 2004 after the organization observed overwhelming cases of the “rip-offs and exploitation of Indigenous artists” and realized specialized service for them is in need, the program now consists of 15-20% of the organization’s legal work, showing that the considerable amount of legal service provided by the organization is attributed to serving Indigenous artists and their art community, according to their website. Among other achievements through this special program, in 2013, Arts Law successfully advocated for the repeal of Western Australian intestacy laws, which discriminated against Aboriginal people in the State. According to Ayres, the program has also included advocacy on the world stage at the World Intellectual Property Organization’s Intergovernmental Committee (WIPO IGC) meetings about the “need for an international instrument to protect indigenous knowledge and culture.” Arts Law has also made submissions to the Australian government and contributed to the discussion on the better protection of the Indigenous Cultural and Intellectual Property (ICIP) through reform of legislation.

The Artists in the Black program also promotes a new pro bono program called “Adopt a Lawyer,” which partners Aboriginal and Torres Strait Islander community art organizations with an experienced law firm for a three-year partnership. By creating one-on-one relationships between the Aboriginal art organizations and a single law firm, the organizations in need can directly benefit from more timely access to legal advice from the designated firm, and the law firms can enjoy a closer relationship and understanding of Australia’s Indigenous culture and community. For example, through this program, Mowanjum Aboriginal Art & Culture Centre, which represents artists of the Worrora, Ngarinyin, and Wunumbal language groups, is paired with an international law firm Ashurst. Such a program, specially designed for aboriginals who might not have access to legal and business resources related to their art, is unique to this Australian organization, exemplifying the diversity of Australian artists and the organization’s commitment to all of them.

Arts Law Centre of Australia seems to be one of the few examples worldwide where there is a concerted effort to assist artists in navigating the legal and business realm. Ayres stated that although Arts Law does not have any formal relationships with organizations outside of Australia, it occasionally makes informal referrals to “sister” organizations and works with law firms that have global network for the benefit of Australian artists. She also expressed that the organization would be interested in exploring the possibility of more reciprocal arrangements. In the upcoming Spotlight, Center for Art Law will examine the work of Institute for Art and Law in the United Kingdom and Korean Artists Welfare Foundation in South Korea and Arts and Law in Japan. As Arts Law Centre of Australia continues its work 30 years after inauguration, other countries and attorneys worldwide should take notice and aim to set up similar services for their creative community.

Sources:

About the Author: Melissa (YoungJae) Koo, Legal Intern with Center for Art Law, is a third year student at Benjamin N. Cardozo School of Law, concentrating in Intellectual Property law, especially art and fashion law. She can be reached at youngjae.koo@law.cardozo.yu.edu.