When it comes to helping clients with their estate planning, art has more value than as something merely beautiful to look at.

Clients who have valuable artwork or other collectibles that are difficult to divide or that their children do not want can look to charitable remainder trusts as one possible solution, said Sarah McDaniel, managing director and head of family office resources generalists and art initiatives at Morgan Stanley.

These trusts are designed to save asset owners taxes that would be due if they sold their artworks on the open market. The trusts are also designed so that when they expire they let philanthropically inclined clients help charitable organizations.

“On average, high-net-worth individuals hold 10% of their wealth in art and collectibles,” McDaniel said in an interview with Financial Advisor. “Because of the nature of the assets, the value may be difficult to divide among heirs, or no one heir may want the piece.”

A charitable remainder trust provides a solution to that problem. It is designed to reduce the taxable income of an individual by first dispersing income to the beneficiaries of the trust for a specified period of time; then the remainder is donated to a designated charity.

“Art markets are quirky, and you do not want your clients forced into a fire sale when they or a trustee is trying to divide the estate,” McDaniel added.

“For example, I had one couple as clients who brought several pieces of artwork from Europe to the United States,” McDaniel recounted. “They had three children, but there was one piece of art that was more valuable than the others. There was no way to equitably divide the pieces. If they sold the pieces outright, there would be a 28% tax imposed.

“Instead, they placed the items in a charitable remainder trust, received a tax deduction for part of the value, received income from the trust and then gave a sum to a charity of their choice.”

The asset can be held in the trust until one owner dies, until both members of a couple die, or for up to 20 years, depending on how the trust is set up, McDaniel said. A trustee is appointed to manage the asset. Because of the need for income distribution to the former owners, there needs to be a market for the artwork.