Own Or Possess?

The alternative is title insurance, which has evolved as a means of managing art ownership risks. For one to buy, sell, gift or otherwise use property efficiently, one needs the linchpin of certainty that he or she has legal ownership. This point is just as true for a client's art as it is for his real estate. The key features of art title insurance are similar to those for real property title insurance: (i) a one-time premium for coverage for the life of ownership of the work (and the life of ownership of the heirs at law); (ii) no deductible; (iii) full indemnity for the value of the art based on the purchase price or a fair-market value appraisal of the art for owner-in-possession policies; and (iv) defense costs outside the limits, that is, in addition to the indemnity for the insured work. Policy endorsements can give clients charitable gift protection, give them public relations expense coverage if they are highly public parties and can give them increases in limits for works that appreciated in value after the policy inception.  

Thinking More Broadly

This article barely scratches the surface of the risks that clients and their advisors face when art is a significant element of the overall asset base. Art should be viewed broadly to include similar collectibles that have identical title risks, such as limited edition books and manuscripts, vintage automobiles and rare musical instruments. If a client does not actually own his or her valuables free and clear, then their ability to engage in any transaction-buying, selling, gifting, borrowing against, lending or engaging in a tax strategy-is at risk and they, together with their advisors, should give new focus to what is indeed a new asset class.