<p>Case study</p>Successful estate management

Case study

Successful estate management

The importance for the family of early attention to Inheritance Tax exposure and thoughtful family estate planning.

We were contacted by an artist whose husband had recently died.  The couple had wills in place, leaving everything to the survivor.  They owned a valuable house (including the artist's studio), the artist's business (which was run as a partnership between the artist and her husband) and some modest savings.   The artist was in her late 70s, beginning to suffer mobility problems and needing more support with day to day life.  Her daughter was thinking of ways in which her family and her mother could live together going forward.

The husband's will was simple and tax efficient.  It gave everything to his artist wife, with no inheritance tax to pay because it qualified for the spouse exemption.  However, it did not anticipate the daughter's position or her future inheritance.  Leaving the will unchanged, the daughter would face a 40% inheritance tax bill on everything on her mother's death.

We were able to advise on what was involved in the probate process and how that would affect the artist's work and business.  We applied to the Land Registry to divide ownership of the house retrospectively following the husband's death and then re-wrote ('varied') the husband's will so that half the house and studio could be left to the daughter as at the date of his death.  We were also able to introduce the daughter as a partner of the business to ensure that she received income and half her inheritance early – with no payment of any tax.  She, her mother and her family are now happily installed on the south coast and her mother is looking forward to a retrospective as she enters her 80th year in 2021.

Ensuring that proper arrangements are made before death with the gallery representing an artist.

We have recently assisted an artist by renegotiating the terms of his contract with his gallery.  He came to us for help in preparing a new will and we suggested that we review the contract at the same time.

We discovered that it contained a clause giving the gallery a right to continue to represent the artist's estate even after his death, with no option for his executors to alter the terms of the contract.  This would have allowed the gallery to negotiate sales and hold exhibitions without any consultation with the family and, worse still, to extend the contract for another 5-year term without the agreement of the executors.  We were able to raise this issue sensitively with the gallery and amend the relevant clause, avoiding any ill-feeling between the artist and his key contacts there. 

Our artist has since lost mental capacity, so it was fortunate that this was completed in time.  Without capacity, an artist cannot change the terms of a contract (or their will) unless an application to court is made.  These applications can cost £10,000s to make.

What can go wrong if an artist’s will is poorly drafted such that, following his death, the Executors are unclear as to his exact wishes.

The artist in this case made a will many years ago, naming one executor.  It left a number of cash legacies and then stated that his paintings should be distributed by his executor according to his wishes that he had apparently made known already.  The executor was not aware of his wishes and no letter of wishes was ever found.

After the death, the executor did his best to ensure that a few paintings were taken by a local institution and he entrusted the rest to colleagues of the artist to look after.  Unfortunately, apart from those few paintings on show at the institution, the remainder of the artist's oeuvre disappeared from public view.  One artist colleague then lost mental capacity and the executor's health began to fail – he now has 24-hour care and his memory is poor.  The remaining colleague of the artist who was thought to be caring for the majority of the works was reluctant to enter into discussions.  There was no clear idea of what works survived or what plan existed to ensure they could be seen by the public in future.

The will was not correctly drafted.  The absence of clear words in the will itself and no letter of wishes meant that there was no guidance from the artist on what he wanted for his body of work.  There were two charities named as 'default' beneficiaries in the will.  If matters cannot be resolved, the charities could inherit all the artist's work - which we believe they would inevitably look to sell at a time when it is worth only modest amounts.  The artist is ripe for rediscovery and we are working with two enthusiasts of his work to agree a way forward.  

This case illustrates a difficult situation which could easily have been avoided if the artist had taken proper advice at the time. 

When planning your ‘legacy’ it is vital to ensure that you have the right structures in place and people you trust to administer things once you have passed away.

An artist came to us for help in finding a way to keep her work together after her death in a way that would finance her family and also ensure the public continued to enjoy it.

She had been advised to set up a company in the 1990s and believed that this owned all her art.  Through our research we were able to establish that in fact she had two businesses – the company that owned all paintings and sculptures from the 1990s onwards when it was set up and also a sole trader business for all her work that pre-dated then, including an extensive body of prints and lithographs.  The artist had a variety of wishes for the way in which her house and studio should be used after her death. She had a number of works of her own but also by other well-known artists that she wanted certain individuals to inherit, being happy for the remainder to be held long term as her 'legacy'.

We were able to confirm that both businesses would qualify for relief from inheritance tax on her death and could therefore be transferred into a flexible trust structure that would benefit both family and the public.  We advised that her studio should be transferred to the company now to ensure that it too benefitted from relief (saving 40% inheritance tax on this as a result).  The artist has subsequently completed her own catalogue of works, identifying 'core' works that must be retained to form the central part of her collection, 'endowment' works that support these key pieces (representing examples of styles or periods in her work to give depth to any exhibition or study), her archive pieces and 'non-core' pieces that might be sold to raise funds to meet the needs of family members or underwrite the costs of managing the central collection after her death.  The trust under her will can be managed as two funds, one for family and one for her 'legacy' works.  Separate trustees with appropriate skills can be appointed for each.  A detailed letter of wishes has been prepared, which sitting alongside the now completed catalogue, will give solid guidance to her executors and trustees in the years to come.

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