By Rebecca McDade
Rebecca McDade is a regional wealth advisor at Northern Trust.
Given the beauty, variety and allure of art, it’s easy to understand why it’s beloved by collectors. Unfortunately, art can be a challenge to estate planning.
Art carries more of an ephemeral charm than other asset classes, so its future value is often amorphous. The inability to plan for future value, along with the difficulties of proving authenticity and provenance, make wealth planning with art more of a headache than some might expect.
There are even more specific considerations to be aware of with digital art. Although still a small percentage of all art sold, digital art is a fast-growing and dynamic new medium.
It comes in myriad forms, from computer-generated art that can be printed and made tangible, to digital displays like Chicago’s Art on the Mart displayed on the Merchandise Mart that are intangible. Some digital art will remain relevant for decades to come while other works will have relevance only until their technology becomes obsolete.
And, as is the way in our current technological environment, the art world is already exploring the benefits of blockchain, a digital record of transactions that is impossible to alter without detection.
Digital art creates its own unique set of challenges for the estate planner, in large part because it is a newer medium and is dependent upon technological innovations with their inevitable obsolescence. These factors impact a work’s future value, which in turn can influence the collector’s “fair vs. equal” dispositive intentions.
Because digital art is inherently replicable, value and the grantor’s dispositive intent can be easily thwarted. The industry is exploring ways blockchain might ensure authenticity, establish provenance, secure transactions and enhance privacy.
For example, an artist could use blockchain to create a unique digital edition of her work and then track its ownership. She might also use it to receive automatic payment whenever one of her works is sold. The collector could use blockchain for privacy, avoiding the need to provide personal information for each transaction. Since each edition of the artist’s work could be tracked, the collector could experience a level of trust not currently afforded him.
Blockchain already is changing the way in which collectors own some digital art thus transforming how estate planners strategize around it. Take for instance Jennifer and Kevin McCoy’s film project “Public Key/Private Key” at the Whitney Museum of American Art in New York.
The filmmakers created a film and divided it into 50 sections, selling each section to a separate collector. No one collector owns the entire work nor does any collector have actual physical possession of their section. Rather, each may digitally access their section at any time. If a museum wants to install the work it must seek permission from 50 owners.
This type of fractional ownership is exciting when you think of the artist who sells fractional interests in a work specifically with the intention that not all owners will agree to an installation request. Consequently, the work that is displayed is ever-changing!
Given the nature of digital art, changing technology and the advent of blockchain to the industry, it is incumbent upon estate planners to understand the dynamics, anticipate legal intricacies and to consider questions around trustee responsibility and liability.
For example: Should the trustee’s responsibilities and potential liability be dependent upon the level of art and technology experience and might it make sense to specifically define the trustee’s duties as they relate to different functions (e.g. value, authenticity)?
Certain digital art, by its very nature, will lose some or all of its value over time. What kind of responsibility, if any, should the trustee have for capitalizing on a work’s value before it’s gone? What kind of hold harmless language needs to be contemplated? And, is there any benefit to the grantor specifically naming the professionals and resources the trustee is required to use?
If the grantor does this, should it mitigate trustee liability in whole or in part? How does one incorporate the idiosyncrasies of blockchain technology into a trust’s administrative provisions?
There are various other challenges to consider when planning with digital art. If you give yourself over to the allure of the challenges, then solving for them can be as exciting, complex and nuanced as the art itself.
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