A depressed art market: not a bad time to die

US tax court’s valuation revision reduces estate taxes for heirs

A leading art lawyer has a silver lining for collectors concerned about the falling art market: it could lower the tax bill on your estate. Diana Wierbicki, a partner and the head of art law at Withers Bergman, cites a December 2015 case where a US court revised downwards the estate tax value of three works—by Picasso, Motherwell and Dubuffet. The paintings had belonged to Bernice Newberger, who died in July 2009, when the art market was weak.

As a result, Picasso’s Tête de Femme, Jacqueline (1963), which sold at Sotheby’s in London for the equivalent of $13m in 2010 (and for a hammer price of $11.5m, according to the court papers), was given a “date of death value” of $10m after the sale price had been adjusted to July 2009 market conditions.

The 1966 Motherwell (which hadn’t sold at the time the estate filed its tax return) had been compared for tax purposes to another similar work that had sold in November 2010 for $1.4m. By this time, “the artwork market had largely rebounded from its downturn”, according to the papers. Newberger’s estate successfully argued that the date of death value for the work was $800,000.

Similarly, the 1967 Dubuffet was unsold when the estate tax return was filed, but was compared to a similar work from the same series that sold for $825,000 in November 2007—a time before the art market downturn. An appraisal from Sotheby’s found that the date of death value of this work was lower given market conditions, at $500,000, which the court upheld.

The papers reveal that Newberger bought the Picasso for $195,000 in 1981, the Motherwell in 1969 for $8,000 and the Dubuffet in 1982 for $40,000.

“I think that the courts are doing the appropriate thing,” Wierbicki says. “The only question is how accurate you can be about retrospectively assessing art market conditions as they relate to the valuation of one particular work.”

Neither Wierbicki nor Withers was involved in the Newberger case.