Art in Trusts: Cayman Islands

Click here to download article

Down to a Fine Art: Practical Tips For Holding Collectibles In Trusts

Acquiring artworks, antiques, and other collectibles is a common pastimeof private clients, for reasons that can vary greatly from profit-making tomaintaining cultural ties, or simply as a general reflection of their interests.It is also a pastime that is on the rise: having weathered global financial crisesin recent times, and perhaps anticipating market volatility in the future, manyprivate clients are increasingly looking to invest in "real assets" that areknown to maintain or increase in value in the long term. Art very much fitsthat profile and, with trusts being a favoured vehicle in which to hold suchassets, trustees are more frequently being asked to acquire and manageartworks as part of their trusteeship.

Art as a trust asset

Most commonly, artworks forming part of the assets of a trust comprise awell-established family art collection, with the trust itself having beenestablished to protect and preserve that collection for the enjoyment offuture generations of the family. However, in modern times, trustees maybe required by the terms of the trust deed to do more than simply hold andprotect family artworks: trustees may have duties to actively build an artcollection for the benefit of the beneficiaries of the trust, they may be askedto manage artworks for philanthropic purposes, or they may find themselvesappointed as trustee of a trust, established with the express objective toinvest in an emerging artist in order to fund and promote further works.

Type of trust structure

From a Cayman Islands perspective, the most effective trust structures usedsolely for holding and actively administering and managing artworks inaccordance with the settlor's objectives are STAR trusts and reserved powerstrusts. The trust deeds for both forms of trust structure can be tailored tooffer the settlor greater involvement in the succession planning process,and to carefully prescribe arrangements for the management of the particularcategories of artworks settled on the trust. Practically speaking, housingartworks in a trust can also allow for a clear and easier administration andmanagement process: provisions can be included to allow for the trustee todelegate tasks to specialist advisors or curators who can make the necessaryarrangements for matters such as transportation, insurance, storage, anddisplay or exhibition of the artworks.

Considerations for a trustee

There are a number of important considerations for trustees who are taskedwith administering a trust which has, or is to have, artworks included as part ofits corpus:

  • Issues often arise as to ownership of artworks, the trustee should obtainevidence to confirm that the transferor has legal title to the artworks beforearrangements are made for them to be transferred into the trust.
  • Before transfer, the trustee should also ensure the authenticity and provenanceof the artworks, including by confirming, with the assistance of specialists,the identity of the artist and that the artworks are original pieces.
  • Consideration should be given to whether there are any legal or taxationconsiderations for the transferor of the artworks at the time of transferringthe artworks into the trust, such as gift taxes. As there are no taxes of thisnature in the Cayman Islands, no such issues will arise locally but it wouldbe prudent for the transferor to take domestic advice.
  • The trustee and its advisors should prepare and execute all necessarydocumentation to give effect to the change in ownership of the artworks(from transferor to trustee), and ensure that suitable insurance has beenobtained from a specialist insurer (and security for the physical protectionof the artworks, if necessary) with effect from the date of transfer.
  • The trustee should also take care to ensure that sufficient funds aremaintained in the trust structure to meet the ongoing costs relating to theartworks, as well as professional fees charged by specialists, insurers, andother parties involved in protecting and managing the artworks.
  • From time to time, the trustee may be asked to make a decision aboutwhere the artworks will be kept (for example, at the residence of abeneficiary or loaned out to a museum). If the artworks are to be movedfrom its current location after execution of the transfer documentation orat any later stage, the trustee will also need to attend to careful shipmentby fine art shippers, as necessary.
  • The trustee should at all times keep clearand careful records of the location of the artworks, have arrangements inplace to inspect them from time to time, and ensure that any third partyholding the artworks understands that the trustee remains the legal ownerin its capacity as trustee of the trust.The trustee should also take clear instructions from the settlor as to his or herwishes regarding whether the artworks can or should be sold in the future(if so, at what time and in what price range) or preserved for the enjoymentof the family.

While managing artworks as trust assets can seem a daunting task for a trusteemore used to 'run of the mill' assets such as cash and shares, with carefulattention and the assistance of specialist advisors, the risks can be greatlyminimised and the settlor's legacy preserved.

Sponsorship

Find out why leading brands in the private client industry are partnering with PCD to raise their profile, make connections and drive new business.

MORE INFO

Membership

Find out how you can participate in the leading club for international private client advisors and unlock opportunities around the globe. 

MORE INFO

MoST Content Management V3.0.8151