storeroom, National Museum of Natural History. Museum geographers Hilary Geoghegan and Alison Hess write that storerooms are “shaped by the emotion attached to the objects they house.” A storeroom, they write, is “a lively space…exhibiting a magical,
enchanted materiality.” This demonstrates that it is
not only the collectors that are taken with their collections but the museum caretakers of such gifts as well. Deaccessioning parts of museum collections
has recently come under scrutiny as these institutions
try to remain afloat during hard times.
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The Back Story
When I sold my beloved Chinese porcelain at Christie’s several years ago, the Chinese had largely exited the market. It affected my return at the sale which was not as rich as I hoped or expected.
There is little reason to think that it is different today. However, there is one glint of hope. Christie’s saw an uptick in some sale areas in 2024, including in its sale of Asian art as well as total online sales. I will be selling Asian art again, so just maybe I’ll do better.
Now, mind you, I am not selling at Christie’s NYC this time. Rather, my pieces will be offered at Sotheby’s, NYC. Still, sales at Sotheby’s may be similar to Christie’s and my lots will go swimmingly (fingers crossed). For me, however, my reserves are lower than I would wish, but to change them requires more energy than I can muster at this time. So, I’ll live with what was determined and hope that more than one person wants what I am offering. That is the key to making money – two individuals bidding against each other at an auction.
In General
What impresses me here is how difficult deaccession is compared to acquiring. It’s something to think about when buying pieces that are desirable to us though they may not be to others. Certainly, that fact wouldn’t stop most of us. We want what we want, and are determined to get it – the thrill of the chase. But, once we have it, who will take care of shepherding it out of the house later? Will it be us or relatives who don’t really want it or someone else who represents our estate sale – God forbid.
In my book, Inside the Head of a Collector: Neuropsychological Forces at Play, “sell” is mentioned 53 times. On the other hand, “buy” is referred to 114 times, more than twice as much. What does that tell us? We collectors like to buy!
And there is good reason. It stimulates our pleasure center (the nucleus accumbens). That is no surprise to us. What is unexpected, however, is that the anticipation of acquiring what we crave activates the pleasure center dramatically. It burns more brightly than when we finally possess the piece!
Deaccessioning Primer
Now, for the less upbeat news. Though buying is uppermost in everyone’s mind when collecting, deaccessioning is equally or even more critical. I know from experience. It can be wrenching. All the love that went into gathering what we judged as precious now has to be dispersed in some manner to someone who doesn’t have the same affection or love for our chosen treasures.
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1. Offer outright at auction or to a dealer or private individual
Though selling sounds easy, it carries its own set of hitches. There is the trouble of packing and shipping, plus commissions and tax consequences: 28 percent rather than 20 percent on capital gains. For the collector, dispersing the collection at death rather than while alive can circumvent some of these
difficulties; for example, she doesn’t have to think about packing and shipping because someone else does. Additionally, the tax base is increased to fair market value at death. Though this may prevent the need to pay capital gains, the gain is taxed to the estate for tax purposes, but the taxable gain is only the excess above fair market value at death if the estate sells the property. If the property was distributed to a beneficiary/heir, then any gain on the sale would be taxable to the beneficiary/heir (and any loss would be nondeductible). The gain would be the excess over the fair market value (FMV) of the property on the date of death.
To most people understanding this is difficult to impossible. Always see your tax advisor regarding your individual situation.
2. Give to heirs
Giving to heirs can start before death because of the annual gift tax exclusion, now $18,000 (2024) per year per individual or for married couples, the combined 2024 limit is $36,000. For 2025 the limit is $19,000 for one person or $38,000 per couple. The gift tax exclusion can be used to give entire or partial ownership when alive.
The lifetime exclusion (2024) is currently $13.61 million for one person or $27.22 million per married couple. This allows the transfer of this considerable sum during a lifetime or at death without incurring any federal gift or estate taxes. However, this significant exemption is set to “sunset” after December 31, 2025. This means again that a tax attorney needs to be consulted about the possibilities and options for any particular situation. The tax basis of the heirs is that of the donor during life and is not “stepped up” as is a bequest at demise.
At death, collectibles can be dispersed according to the value or interest of the heirs. If the survivors want to keep the collection together after the collector has passed, forming a limited liability company (LLC) is an option. In this way, when the collection is purchased or sold, members pay or receive monies according to their shares in the LLC. The LLC entity divorces legal from beneficial ownership. Thereby, feelings related to selling property with a personal connection are lessened, and there is a governance structure regarding who has the authority to buy or sell.
3. Donate to a museum or other institution
Giving part, or all, of a collection to a nonprofit institution while alive has distinct advantages:
• First, there is an income tax deduction of as much as 30 percent of adjusted gross income, depending on the appraised value of the gift.
• Second, the donor can have a “feel-good” moment that can be sustained if she is honored by the nonprofit and thereby recognized by others for her generosity.
• Third, a definitive and binding gift agreement negotiated by the donor can dictate how the collection will be exhibited and maintained to fulfill her objectives even if the institution’s leadership changes.
Another possibility is to give a gift over time. This is called a fractional donation, and the donor is entitled to a tax deduction depending on the portion given in any one year. An additional requirement is that the museum must physically possess the art for a period of time equivalent to fractional ownership each year. For example, if 20 percent of a $500,000 artwork is given to a museum, it is permitted to show the art for 20 percent of the year. The donor receives an income tax deduction equivalent to 20 percent of its appraised value. According to current tax law, the fractional ownership transfer must be completed within 10 years.
A potential “con” of donating during life is that the donor may need to hire an appraiser to do a qualified appraisal in order to qualify for a deduction of $5,000 or more in one year. I consider this effort and trouble minor compared to the potential benefit to the donor.
On the other hand, if the collector waits until death to donate to a museum, the process is easier. The pieces to be donated are delivered to the museum, and the estate receives a tax deduction based on its valuation at death.
4. A combination of the above
For many collectors, using all three dispersal channels makes perfect sense: to give heirs objects that they chose as a remembrance, to sell others for cash for assorted reasons (including that they are not museum quality), and, lastly, to give the remainder to a museum or other nonprofit if they will take it. Then, the remaining question is how to deaccess during life, at death, or both.
Summary
Here, we covered the mechanics of the major choices when a collector “lets go.” If she does not “let go” during life, it will happen after death, often by children and relatives who may be little, or not at all attached to the objects. This sadly will likely not be what the collector wished.
References
Shirley M. Mueller (2019) Inside the Head of a Collector: Neuro-psychological Forces at Play, Lucia Marquand, Seattle, Washington.
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