Earlier this year, the renowned auction house known as Christie’s, staged the most significant charity auction in history: The Collection of Peggy and David Rockefeller. The result: all 1,500 lots sold for a total of $832.6 million—all of which were directed to causes and charities the couple supported during their lifetimes.
In March 2017, David Rockefeller, the last surviving grandchild of the American oil magnate, passed away at the age of 101, leaving behind an estimated $3.3 billion estate. Most of this wealth came to him via the family trusts, which in turn allowed him to diversify his real estate investment portfolio, but more importantly supported his habit of collecting art. His extensive art collection, amassed over the better part of a century, included works by Paul Gaugin, Diego Rivera, Henry Matisse, and Pablo Picasso, to name a few. Rockefeller’s profound compulsion to collect, a gene inherited from both his parents—John D. Rockefeller, Jr. and Abby Aldrich Rockefeller—was a shared passion between him and his wife, Peggy, who predeceased him in 1996.
Though the two initially planned for their art to be donated; Rockefeller ultimately decided that most organizations needed his money, not his art. The driving force behind this decision was the taxes. It was more beneficial to the charities to have the art included his estate and sold after his death, the proceeds of which would be donated to charity. In this manner, the charities skirted having to foot a magnanimous capital gains tax on donated artwork that they would have otherwise had to sell themselves in order to have liquid funds.
And magnanimous is right. Art falls in the IRS’s category of “collectibles,” which is taxed at a rate of 28 percent. Because the art market has boomed since many of the pieces were bought (for relatively good prices) in the 1940’s, 50’s, and 60’s, the profit realized on a single piece could easily be north of 500,000 percent. (Yes, 500,000%—there is no typo here!) Case in point: Rockefeller’s Rothko painting, entitled “White Center,” was sold in 2007 for $72.84 million, having realized a profit of about 730,000 percent. Imagine a single charity having to pay the capital gains tax on more than one piece of artwork! Had this been the case, then Rockefeller would have defeated his purpose of donating to his beloved charities.
And in so doing, Rockefeller not only avoided (anyone) having to fork over millions in capital gains tax; his very own estate did not have to pay estate taxes—which was 40 percent on estates over $5.49 million in 2017. Why? Because charitable bequests are deductible from the taxable estate.
Needless to say, many art collectors can take a page out of David Rockefeller’s “art planning” book—and the family’s long-term estate planning (but that is a story for another day).