Unfortunately it’s an all too common story – a family not realizing what they have in terms of fine art assets, being taken advantage of, and straining relationships with family members and loved ones because of the complexities of the situation. At Ruffner Art advisory, we hear these stories all the time. But fortunately we’re able to help families avoid these situations and the costly legal fees, time and family strain that is often associated with navigating the highly unregulated world of art without an advisor.
Art & Museum magazine wanted its readers to be reminded of this story and lesson, and we proudly worked together with them to remind everyone of the benefits of working with an art advisor – and the potential pitfalls when families don’t. We also want to share that story with you. Here is that article.
This situation is the reason why we started Ruffner Art Advisory and we are passionate in helping people understand that with a little bit of foresight and planning, families can get ahead of situations like this. Our goal is to help our clients manage their financial wealth as it pertains to their fine art assets. We would love to help you, or someone you know, avoid these all-too-common occurrences and would love to hear from you. Give us a call at 423-228-0107 or shoot us an email today.
Navigating Estates and the Art Market with an Art Advisor
“Twenty years ago, a fraud, a series of frauds, was committed. The victims paid dearly. The price was more than money, relationships were destroyed, and trust was betrayed. What transpired was a heist. It was an act of piracy, brought on by a comedy of errors. One simple change in the beginning of the story could have prevented the crime, and perhaps saved the family.
In 1998 a great uncle and patriarch of an old and prestigious Virginia family of international bankers died at 99 years of age. His daughter and her brother in law were left as the executors of his estate. Their due diligence led to hiring a personal property appraiser from Washington D.C. to help finalize her late father’s estate. The appraiser walked through the dimly lit and substantial storage area, quickly deciding there was nothing worth the fair market value appraisal for the IRS. Unfortunately, the appraiser missed an important American oil painting possibly because of some dust, but definitely because of gross negligence.
Fast forward several months after the estate had been settled. The executor gifted a grandchild (and favorite niece) the dusty old painting that was passed over by the appraiser. The new owner took the painting to a restorer in D.C. for a cleaning where she quickly learned of the painting’s potential importance and its healthy seven figure value. The niece chose to sell the painting through a broker and received a healthy sum. Sadly, she also chose not to share any of this new information about the painting with the executors and her family members. This choice permanently damaged close family relationships and cost the family substantial amounts in legal fees. The one family member that was privy to painting’s sale happened to be the niece’s estranged husband. As a final blow to the end of an unhappy marriage, the soon to be ex-husband placed a call to the IRS. Now the IRS learned what the painting, that was excluded from Mr. Carter’s estate, brought at a private sale.
Tragically, the IRS came after the executors (and bereaved daughter) of the deceased’s estate. They were completely unaware of what had transpired with the painting. Regardless of the executor’s ignorance she was charged with defrauding the U.S. Government, creating a horrendously expensive and painful court battle. In the end, Adelaide was cleared, IRS rules were changed and the selfish heir was found culpable.
The actual sale price of the painting brokered by an independent art broker turned out to be twice what the broker quoted to the seller. An ironic detail brought to light by the court showed the heir made only half of what she could have while the broker walked away with 100% commission.
The incompetent appraiser escaped the court drama because the statute of limitations on his crime of negligence had run out.
While this story took place well before I started my company, I can remember hearing about it from my Aunt Adelaide like it was yesterday. This was my family. It was truly heartbreaking, because it was so completely avoidable.
As a credentialed and experienced professional in the Art and Antiquities field, I have the credentials and experience to carry out my job with confidence, however this story makes my job personal for me. Variants of this story occur every year. The fraud often goes undetected. It does not have to end like this story.
Firstly, this comedy of errors could have been avoided if the trusted advisors for the family had a long-standing relationship with an art advisory firm. The firm would have conducted a thorough cataloguing and valuation of the family’s items on an ongoing basis. This simple act of stewardship and fiduciary responsibility would have identified the painting at the center of the story much earlier in the process. Ideally, with the correct provenance research, the painting’s identity and importance would have been documented, thus safeguarding the family from the appraiser’s gross negligence. Speaking from my experience appraising for comparable families I would have been keenly aware of pieces of a certain value and would have seen the quality of the work in spite of dust and 200-year-old varnish.
With the involvement of a trusted art advisory firm, the family and their advisors would have known what they had from the start. Family collection items that were accumulated over generations would have been catalogued, valued and tracked. As tastes and market values change over time, the value of pieces in the collection would have been updated and recorded. A long-term art advisory would have the Carter family’s best interest at heart. The estate appraiser would have had a place to start, and a check against fraud or negligence. The family would have had a benchmark from which current values could be accurately measured. And should the family choose deaccession a piece, working with their art advisor, a private sale directed by transparency and discretion could have brought maximum value for the client.
In this age of Social Media rumor and hyperbole, relationships built on trust and responsibility are the rarest of commodities. In a field with little regulation, these relationships are the coin of the realm.”
Click HERE to view/download the back issue of Art & Museum magazine where this article was originally published.