What can art collectors do with a collection that has outgrown its space? Or a collection that they don’t want heirs to sell off piecemeal?
One possibility: open a museum.
The move allows very well-heeled donors to know their legacy will be kept intact, rather than split up or displayed by another museum in a way they wouldn’t like. They also get to control which works are displayed and how in their own lifetime, and to see them in an institution with their name above the door.
There’s also the financial benefit of a tax deduction, and the museums themselves are exempt from taxes. But controlling their art’s fate matters most to some collectors. “It’s really not tax-driven,” says
a partner at the law firm of Withers Bergman, a number of whose clients have set up museums.
Setting up shop
Among the more established private museums are the Brant Foundation Art Study Center in Greenwich, Conn.; the Linda Pace Foundation in San Antonio; the Broad in Los Angeles; the Hess Collection in Napa, Calif.; and the Rubell Family Collection in Miami.
set up the Margulies Collection in a refurbished warehouse in Miami in 1999. The collection, which consists of 3,000-plus works of modern and contemporary art, is open to the public Tuesday through Saturday, April through October. Mr. Margulies says he “did this to enjoy my collection and educate young people.”
“At an existing museum, the director may change, the curators may change, the board members may change,” he adds. “The people who promise you one thing, well, they’re gone, and new people come in. They don’t like this, they want to change that. Pretty soon, everything you donated to them is in storage.”
Of course, creating a museum is a step only the very wealthy can afford. Setup can cost millions of dollars, and annual maintenance can be hundreds of thousands. Mr. Margulies estimates his annual operating budget to be $350,000. The San Antonio-based Linda Pace Foundation expects its annual operating budget, now $275,000, to top $1 million when its new space opens in 2019, says
a foundation trustee.
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One of the first steps in creating a museum is for donors to set up a private operating foundation to run it, and then gift their art to it. Just like other art donors, they get a tax deduction. As part of that initial gift, they often give cash to the foundation as well. The money goes toward the rental or purchase of a building in which to place the artwork, which likely will need to be refurbished, and equipped with climate controls and security, all of which can cost millions of dollars. And the artwork will need continuing maintenance and insurance. (The cash outlay is deductible at up to 50% of the donor’s adjusted gross income.)
One ongoing aspect of running a private museum is currently under debate. The Internal Revenue Service requires collectors who set up museums to allow the public to come in to look at the artwork, which requires the hiring of one or more curators and art handlers, as well as other staff. (The artwork must also be available for loan to other museums.)
But the rules don’t specify how often private museums must be open to visitors. And most aren’t open much, compared with public institutions. Most private facilities are open a few months out of the year for three days a week or so, sometimes by appointment only.
Just how often?
Last year, in a letter to IRS Commissioner
, Senate Finance Committee Chairman
(R., Utah) questioned whether some of these institutions merit their tax exemption. Among other reasons, he referred to “lightly advertised museums that require reservations made weeks or months in advance,” narrowing the visitor pool.
Now the Senate Finance Committee has been gathering information on privately held museums “as part of a wider inquiry into the activities of the tax-exempt sector,” according to a committee spokeswoman.
It’s still unclear how the tax overhaul being finalized in Washington will affect rules for private museums. The House’s bill would require foundations that operate as art museums to be open during normal business hours to the public for at least 1,000 hours during the taxable year, says Ms. Wierbicki of Withers Bergman, while the Senate version of the bill makes no change of this sort.
She adds that neither bill indicates any changes in the tax deductions that donors may receive.
Mr. Grant is a writer in Amherst, Mass. Email email@example.com.
Appeared in the December 11, 2017, print edition as ‘An Alternative to Donating Art.’