Stolen Art
by Robert L. Moshman
work of art may be the most valuable asset in an estate. Yet one who possesses an artwork may not have legal title to it. And for tax purposes, the beneficial use of stolen art can be included in an estate even if the stolen art has been reclaimed by the rightful owner. However, the few cases on point leave a great deal to be desired. Let's review some of the potential estate-planning issues raised by stolen property.1
The Stolen Art Epidemic
After narcotics and illegal arms trading, the stolen art market is the next largest illegal industry. Worldwide art losses range from $2 billion to $6 billion each year. Consider the quantity of art that a single prolific thief is capable of.
Stéphane Breitwieser, living in Strasbourg, France, recently confessed to stealing 239 pieces of art worth $1.4 billion from European museums over a six-year period. Upon Mr. Breitwieser's arrest, his mother dumped 109 stolen vases and musical instruments in a canal and cut the paintings into little pieces which she put into her sink disposal and the trash.
In recent years there have been many brazen thefts from public institutions. Two van Goghs and a Cezanne were taken from the National Gallery of Modern Art in Rome. Two more van Goghs were taken from the van Gogh museum in Amsterdam. In New York, a painting by Salvador Dali worth more than $175,000 was stolen from Riker's Island Prison. An entire group of paintings worth $200 million were taken from a Boston museum.
The Scream, by Edvard Munch was stolen from the National Gallery of Norway. (It has since been recovered.) Other recent thefts took place in Switzerland, the Netherlands, Brazil, and Spain. To counter an epidemic of Italian art thefts, Italy issued a catalog of 1,500 stolen art treasures: "L'Opera Da Ritrovare (Works to Recover)." A central website, Provenance Internet Portal, is expected to link sites listing thousands of lost works.2
Nazi Art Seizures: A two-year study by a blue-ribbon panel resulted in a report that exceeds 300 pages but which can only scratch the surface of what is estimated to have been looted by the Nazis between 1933 and 1945. Over 600,000 important works of art were seized by the Germans. Between 10,000 to 100,000 museum quality works of art remain unaccounted for.
Artwork seized by the Nazis can end up in litigation whenever it surfaces. Thus, paintings by Egon Schiele that were stolen by the Nazis were seized after being shown at a New York museum. A 400-year old painting by a Dutch artist was allegedly looted by the Nazis from the family of a Polish prince, sold by an art dealer in the 1950s and inherited by a Cornell geology professor. When the painting was listed for auction by Sothebys, heirs of the Polish prince found out and sued the geology professor. The assumption of good title, even after 40 years, can be dangerous.
Antiquities: Ownership of antiquities has been challenged as nations try to recover artifacts that are illegally smuggled from archeological digs and sold to wealthy investors in other countries. In 2002, directors of 18 major museums issued a statement justifying the retention of art because they "have become part of the museums that have cared for them, and by extension part of the heritage of the nations which house them."
Nevertheless, Greece would like to reassemble the Parthenon, but many slabs of the marble were removed By Lord Elgin to the British Museum in 1801. Other pieces reside in the Louvre and several other museums. Egypt has demanded the return of objects taken from the pyramids. Turkish authorities battled billionaire William Koch, who allegedly paid $3 million for an ancient trove of coins including 12 of the 30 known silver decadrachmas. The coins had been buried for 2,400 years. [Peasants who found the coins with a brand new metal detector tried to sell the coins. They ended up paying $80 fines and spending a year in jail.]
Heinrich Schlieman, a German archeologist, found three hundred pieces of gold jewelry that he believed were from ancient Troy. These were looted during the fall of Berlin at the end of World War II. The objects only recently have resurfaced in the Pushkin museum in Moscow.
The Meador Case
During the waning days of World War II, the priceless treasures stored at the church of Quedlinburg, Germany were relocated to a mushroom cave outside of town. When the American army arrived, a soldier named Joe Meador "liberated" about a dozen religious art treasures and manuscripts.
Joe Meador passed away in Texas in 1980. In the years that followed, Meador's heirs sold a number of the ancient manuscripts, including one that was sold for $3 million. In 1990, the authorities in Quedlinburg caught up with the Meador heirs and paid them $2.75 million for some of the remaining artworks and manuscripts. Meador's brother and sister were charged with possession of $100 million of stolen property but criminal charges were later dismissed.
No estate tax return was filed for Joe Meador's estate based on its small size. Was the stolen artwork taxable as part of his gross estate? Yes. The decedent possessed the use and economic benefits of the stolen property. Valuation under §2031 was based on what any willing buyer, including buyers from the "illicit market," would have paid at the time of Meador's death. No estate tax deduction was permitted for claims subsequently made for the property because the estate had closed, the statute of limitations had run, and such claims resulted from the entrepreneurial activities of the heirs, not the decedent. TAM 9152005 (1991).
Valuation Issues
An estate containing an extremely valuable work of art that is potentially stolen has several critical valuation issues. First, if the title to the stolen object is defective and is successfully challenged, the artwork may have no value. On the other hand, if a valuable work of art is included in an estate, transfer taxes may be triggered. Liquidity may also be a major factor if there is a limited market for the work of art. Equitable distribution of an estate among various heirs must allow for the range in an artwork's potential value.
From a tax perspective, §2033 was applied by the IRS in TAM 9152005 to include the value of stolen property in the owner's estate under a theory of use and benefit of the property. Specifically, under Texas law, the owner had a superior right to the property than anyone other than the party from whom the property was stolen.
Contraband: Similar reasoning was applied to the valuation of illicit drugs. A drug dealer was killed when he crashed a plane full of 662.5 pounds marijuana into a tree. For purposes of the drug dealer's estate tax liability, the marijuana found on the plane was valued at its fair market value in the jurisdiction where the plane crashed. Forfeiture of the contraband did not qualify for an estate tax deduction. TAM 9207004 (1991).
It is unusual to have a brace of TAMs arrive simultaneously for stolen and illegal assets. It is unusual that 12 years later, those two TAMs are the only official position that has been taken. But most unusual of all is the apparent weakness of both decisions.
In, TAM 9152005, the IRS said the decedent's heirs use of the property for 10 years could be valued using standard valuation tables. As a term of years, the heirs enjoyed a value of 55.8% of the property's fair market value. But this analysis cannot withstand much scrutiny. At the time of the decedent's death, it was not known how long the heirs would retain the property before being caught-the ten years was only determined after the fact. More significantly, fair market value is what the market will bare for full ownership rights, so the limited right to use property should be valued far lower.
As for TAM 9207004, there is reason to base the value of the illicit goods on wholesale prices in the market where they would usually be sold. Thus, where a taxpayer purchased a large quantity of uncut gems at a low price, the Tax Court barred him from claiming a charitable deduction based on retail prices.3
Recovery of Stolen Objects
A thief can never convey good title. No amount of good-faith transfers can clear the tainted title. Nor are claims time-barred by statutes of limitations because courts are sympathetic to the difficulty of tracing stolen art.4
Certain Courts have required those asserting ownership of a stolen object to exercise due diligence in attempting to locate the object. Yet the New York Guggenheim museum's failure to report a theft or attempt to locate a painting for 20 years did not preclude a legal action to recover the painting. In jurisdictions that have a replevin law, a statute of limitations may start to run once a stolen work of art has been (or should have been) located.
Collectibles Checklist
Inventory: A list identifying all art objects in a collection
Title: Document ownership. Unlike assets governed by the Uniform Commercial Code or title insurance, the title of art and collectibles may be far less certain. Hidden ownership claims may result in liability to executors for defects in title. Executors, trustees and attorneys have a responsibility to assess the assets and liabilities of an estate. A reasonable investigation of an art object's title must be documented to demonstrate the owner/collector's good faith. Many registries of stolen art now exist and must be reviewed in establishing title
Appraisal: The value of the object must be established for insurance and tax purposes, not to mention marketing an asset and securing an appropriate sale price. Even if an asset is to be distributed by will to a family member, an appraisal is needed to establish an equitable basis for distribution of assets to other family members
Insurance: A collectible should be insured along with any other valuable assets
Security: Assets should be stored in a manner that prevents theft as well as environmental damage from light, temperature, dust, etc.
Disposition: Collectors form extremely strong attachments to their prized possessions. Lifetime gifts or testamentary dispositions of such assets must be treated as one of the primary goals of an estate plan
Tax Ramifications: A planner should be aware of key tax strategies, such as a valuation discount for a large block of an artist's art that could depress market prices. Special planning is needed for an artist's estate.5 Charitable giving alternatives and capital gains rules are also relevant.6
Marketing/Sale: As opposed to stock holdings that can be sold on the open market, collectibles have a limited market of buyers. Selection of a dealer or auction house is an important consideration. The timing of when to offer items for sale and whether to keep collections together or sell individual pieces must also be evaluated
Advisor: Ideally, a financial plan should utilize an independent art advisor who receives a fee rather than a commission and who is not affiliated with museums, auction houses, dealers or artists.7
The Stradivarius Estate
One of the most unique niches of the stolen art and collectible world revolves around a small universe of original violins made by Antonio Stradivari. Between 1666 and 1737, the master craftsman made as many as 1,116 stringed instruments. About 900 of these were violins. Of these violins, there is a known universe of at least 512 and as many as 540, which are believed to exist today.
An exact count is never certain because Strads are constantly going missing or turning up all over the world. Daniel Pearl, the reporter from The Wall Street Journal who was slain in Pakistan, covered several of these Stradivarius capers in an October 17, 1994 article. The 1735-"Ex-Zimbalist" Stradivarius, which had been missing for 30 years, had been recently photographed in Japan…but is still missing. In 1951, amidst the Korean war, a genuine Stradivarius turned up in the wall of a South Korean home. "The Colossus," a unique Stradivarius violin of slightly larger size, was stolen in Rome in 1998.
The 1732 Duke of Alcantara Stradivarius is owned by UCLA. In 1967, a member of UCLA's string quartet performed with the University's Stradivarius. What happened next isn't certain…but it looks like the absent-minded professor set the $800,000 Duke of Alcantara on the roof of his car before he got in and drove home.
Flash forward 20 years. Enter, amateur violinist Teresa Salvato. She had gotten a violin in a divorce settlement. It had belonged to her husband's aunt, who supposedly had stopped when mistaking the canvas-wrapped case for a baby, lying by the on-ramp to a freeway. One day, Teresa's violin teacher showed the instrument to a violin dealer and in minutes it was identified as the Duke.
Lost In New York
Anyone who is fortunate enough to inherit or acquire a Stradivarius should probably avoid New York City. Apparently, any Strad not tied down in the Big Apple will vanish in a New York minute.
A Strad worth $1.75 million was stolen from a Rolls Royce parked in New York in 1994. In 1995, virtuoso violinist Erika Morini fell ill following her final concert in New York City. The $4 million violin she had inherited from her father was stolen as she lay dying. Her family concealed the theft from her, knowing how much the news would have hurt her. A $500,000 reward has been offered. Another Stradivarius worth $3.5 million was stolen from a New York residence in 1996.
And in 2002, a rare 1714 Stradivarius, "Le Maurien," was stolen from a violinmaker's workshop on the Upper West Side of Manhattan. It was valued at $1.6 million and a $100,000 reward was offered.
The Red Violin
Many of the Stradivarius instruments take on special names, often for a famous owner. For example, "the Taft" was once owned by the brother of President Taft. The Taft was auctioned at Christies for $1.32 million in 2000. The Kreutzer Strad was auctioned for $1.6 million in 1998. Other famous Strads include the 1677 "Sunrise," the 1704 "Betts," and the 1715 "Alard," which is considered his finest of all. The 1679 "Hellier" is the most famous of the 10 surviving decororated Strads. The "Tuscan," violin of 1690 was created for Cosimo D'Medici, Grand Duke of Tuscany. And the Messiah violin of 1716, which was not played for over a century, is considered the most pristine example of the master's work. It was appraised at 10 million pounds, which is currently worth $15.7 million.
Many of the Strads have been stolen and recovered multiple times over the past 266 years. For instance, the 1713 "Gibson" Stradivarius was twice stolen from Polish virtuoso Bronislaw Huberman. It was stolen from Huberman's hotel room in Vienna in 1919, but was soon recovered. It was stolen a second time from Huberman's dressing room during his only Carnegie Hall performance of 1936. He collected $30,000 from Lloyd's of London.
A 20-year old thief kept the instrument for half a century and confessed on his death bed. His wife received a $263,000 finder's fee from Lloyd's of London. In 1996, the Connecticut Supreme Court ruled that the $263,000 should have been included in the thief's estate and inherited by his only heir, his daughter. By then, however, the thief's wife had exhausted all of the money. Lloyd's sold the Gibson Strad in 1988 for $1.2 million.
It was a case of life imitating art when the Gibson was recently purchased by a young superstar violinist, Joshua Bell for $4 million. Bell had played the violin for the sound track of "The Red Violin," a movie following a violin through the lives that it touches. As the owner of one of these slippery violins, Mr. Bell would be wise to keep his violin close at hand…and steer clear of New York.
Don't Be Disappointed...
...when someday you get an excited call about someone finding a Stradivarius in an Aunt's attic or a yard sale. It is very, very unlikely to be the real thing. There are literally tens of thousands of knock offs and imitations of the Stradivarius violins that are in circulation. Not only have there been innumerable hand crafted forgeries over 266 years, but there have been unabashed mass productions with factories operating in several countries. The 1902 Sear's catalogue even offered two Stradivarius" models, one for $2.45 and one for $6.95.
TECHNICAL REFERENCES
1
Basha, "Stolen Art: What Estate Planners and Trustees Need to Know", 137 T&E 13, p. 60 (Dec., 1998)(this is a comprehensive treatment with 95 footnotes); Madden, "Steps to Take when Stolen Artwork Is Found in an Estate", 24 EP 10, p. 459 (Dec., 1997).
2
See, Provenance Research Project under www.metmuseum.org/collections.
3
Anselmo v. Comm'r., 80 T.C. 872 (1983), aff'd, 757 F.2d 1208 (11th Cir. 1985), is compared to TAM 9207004 by William Turnier in, "Estate Taxation of the Fruits of Crime", Probate Practice Reporter (July, 1994).
4
De Weerth v. Baldinger, 836 F2d 103 (diligence required); Guggenheim v. Lubell, 77NY2d 311, 567 NYS2d 623 (1991).
5
Moshman, "The 21st Century Art Estate", The Estate Analyst (July, 1999).
6
Rev. Proc. 96-15 requires charitable deductions of $50,000 or more for gifts of art to be reviewed by the Art Advisory Panel. A fee of $2,500 covers the first three artworks. A provenance must be submitted for each artwork.
7
Zale and Temple, "Donations of Art: They Are not Just Appropriate for Museums", 140 T&E 4, p. 41 (April, 2001).
© MMIII.2 K.S.
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