WHAT IS an appreciation of fine art WORTH?

For a business owner in Chicago, it was a vast canvas of sunflowers she saw during a grade school field trip. For a Los Angeles film producer, it was a Rubens painting in the Uffizi on a rainy day. And for an Atlanta entrepreneur, it was a gallery dedicated to Asian calligraphy. Collectors of art can often describe in striking detail the first time they were moved by a work of art. They regard art, and acquiring art - whether paintings, sculptures, photographs, or other works - as a passion and a profoundly personal extension of who they are.

At the same time, even though collectors may view the financial aspects of owning art as secondary, or even largely irrelevant, works of art nevertheless have a financial as well as an aesthetic value. They are part of each collector's overall wealth portfolio, and they should be considered both for the financial opportunities they can provide as well as the issues they can raise when it comes to estate planning. 

"Art has equity value you can tap into to raise cash and take advantage of other opportunities," says John Arena, a credit executive at U.S. Trust. Art collectors may not realize that a collection can be used as collateral to fund other financial goals they may wish to pursue. Given the current strength of the art market, this could be a particularly advantageous time to consider an art loan.

One advantage of working with U.S. Trust to borrow against an art collection is that the pieces can remain in the possession of the owner, thus allowing the collector to continue enjoying the art, Arena says. In fact, collectors whose artwork is on display in museums or in a traveling exhibition may often still borrow against the value of their acquisitions with proper insurance, ensuring that the collection remains accessible to a broader audience. At U.S. Trust, using art as collateral for a loan is typically appropriate for collectors with collections valued at $10 million or more.

But beyond loans, collectors face a number of considerations when it comes to creating an estate plan, notes Ramsay H. Slugg, managing director and wealth strategies advisor at U.S. Trust. Art is intensely personal, and estate planning involving art "is a much more emotional process than when you're dealing with stocks and bonds," he says. "These kinds of assets are not about numbers. They are about the heartstrings and about passion."

Yet it's those visceral connections that make it so important for collectors to consider what will happen to their cherished collections after they're gone. "Collectors have three main options," Slugg says. The first and perhaps most intuitive option is to leave the collection to one's heirs. This is a sensible choice if the heirs express an interest in art. "An alternative, and one which can minimize potential friction among heirs and also keep the collection together within the family, is to transfer an art collection into a family limited partnership (FLP) or limited liability corporation (LLC )," says Slugg. This way, heirs receive partnership interests in the FLP or LLC , rather than the individual works of art directly.

The second option is simply to sell one's collection. This can make good sense right now, since art prices have been rising. However, selling art at any time can be tricky and expensive compared with other assets, says Slugg. A higher capital gains tax, sales commissions, insurance, and shipping costs add up if the collection is sold during ones's life. But selling at death may lower the value of the collection if potential buyers sense an urgency to liquidate the deceased's estate. Selling might well be appropriate, but collectors need to be aware of the potential costs and tradeoffs.

The third option, says Slugg, is to donate your art collection to a museum. "This approach can be personally satisfying, ensuring that noteworthy art remains accessible and visible to the public. It also offers certain tax advantages, particularly if the work is donated while you are alive."

U.S. Trust makes it possible for collectors who decide to donate their art during life to opt for a plan that allows them to loan their collection to a museum for brief intervals over a 10-year period - in essence, sharing the art with large audiences before handing it over completely.

"But whether you take that route or choose a different approach," says Slugg, "you're likely to feel more secure about the financial management and future of your art - and potentially gain more tax benefits - by working with a skilled advisor to outline a precise strategy and guidelines for your collection."