The Astor Family Goes to War—Who Was Advising Mr. Marshall and What Questions Were They Asking?

 
by Michael Mendelsohn

Brooke Astor, the New York socialite and philanthropist, passed away on August 13, 2007. During her life she was the benefactor of numerous charitable causes including the Metropolitan Museum of Art. However, a nasty battle over her estate is brewing which has her son and grandson slinging accusations that include elder abuse and forged documents. It even threatens to pull in the accountants and attorneys involved. One of the triggers for this dispute concerned a Childe Hassam painting called "Flags, Fifth Avenue." Mrs. Astor acquired the painting in 1970 and it hung over the fireplace in her library for years because she included it among her most treasured possessions.
 
Anthony Marshall, Mrs. Astor's son, acquired a power of attorney as his mother's health failed and sold the painting to a New Mexico dealer in 2002 for $10 million. He charged his mother a $2 million commission for handling this transaction. He reported a $7.4 million cost basis (including his fee) for the painting on his mother's 2002 income tax return, which resulted in a capital gain of $2.6 million. The $2.6 million was subject to the 28% federal capital gains tax on the sale of collectibles, which meant a tax liability of about $730,000.
 
However, a capital gains tax discrepancy came to light last year when Mrs. Astor's grandson, Philip Marshall, filed a court petition claiming, among other things, his father (Anthony Marshall) breached his fiduciary duty and enriched himself. During these court proceedings, Anthony Marshall admitted that his mother acquired the painting for $172,000 in 1970. The actual purchase price, when combined with his $2 million commission, would mean a capital gain of $7.8 million instead of $2.6 million. Overstating the cost basis resulted in over $5 million in unreported gain, which at the 28% federal rate amounted to about $1.45 million in unpaid capital gains taxes. Anthony Marshall had to file an amended return on his mother's behalf and pay interest and penalties. He is under investigation and agreed to step down as executor of his mother's estate. All the while, his attorneys are blaming it on his accounting firm.
 
Following Mrs. Astor's death, her estate, including issues relating to the painting, has become the subject of legal wrangling. The Manhattan district attorney is investigating whether amendments to Mrs. Astor's will in 2003 and 2004, which benefited her son, were fraudulent. She was suffering from Alzheimer's at the time of the amendments and a court appointed attorney claimed her signatures might have been forged. The painting could become part of this dispute since two prior versions of her will (1997 and 2001) bequeathed it to the Metropolitan Museum of Art. This situation raises numerous legal issues such as whether her son's sale of the painting, acting under a power of attorney, was consistent with her intent and with her plan for distributing her assets. If her will, other documents, and sworn testimony show that she did not intend to eliminate the bequest of the painting to the Met, one of her favorite charities, then the proceeds from the sale would be up for grabs. The attorneys involved in the drafting and execution of the documents in question are likely to get drawn into the case.
 
The sad tale of the Brooke Astor's Hassam painting provides several important lessons for attorneys and financial professionals when dealing with art and other valuable "stuff."

• Attorneys and financial planners should be on the lookout for situations involving potential breach of fiduciary duty by executors or attorneys-in-fact if they sell art or collectibles and pay themselves large commissions. This type of "double dealing" could lead to disputes with the other beneficiaries. An art planning consultant who is familiar with industry practice could help identify these types of situations.
• When reporting the sale of a valuable painting or other collectible, determining the cost basis accurately is critical for computing the capital gains tax and avoiding trouble with the IRS. Bringing in a qualified appraiser to assist in the process of determining whether the cost basis of a piece is reasonable and able to withstand legal scrutiny is a prudent practice that could avoid complications down the road.
• Art or collectibles should be contemplated when preparing a will or other documents, especially if the collector intends to make a specific bequest. Mrs. Astor planned to leave the painting to the Met in her will that was executed in 2001. In 2002, her son sold the painting, acting under a power of attorney, without documenting whether it was actually her intent to eliminate the gift to the Met. As a result, the proceeds from the sale could be subject to claims. This situation points up the importance of advance planning with an art succession planner to insure that the collector's intent is carried out and to avoid disputes between family members and charitable organizations.

As the issues in the Astor estate demonstrate, lack of lifetime planning frequently results in a family art war. When the family goes after each other the actions of the attorneys and other professional advisors come under intense scrutiny and can trigger potential malpractice claims. Attorneys and advisors need to pay attention to the art and collectibles assets during the estate and financial planning process.
 
An important first step is to expand the client intake questionnaire to gather information about these items, such as:

• Name and type of art holding
• Cost basis
• Current market valuation
• Intended beneficiary: charity (do they want it?) or family (how will they divide it and how will they pay the estate taxes?)

Asking the right questions about art and collectibles on the intake form, and then consulting with an art succession planner, will enable attorneys and financial planners to discuss with their clients the problems lack of lifetime planning can cause. It also will enable development of a comprehensive plan to achieve the client's goals and avoid potential malpractice claims that can result from poor planning.
 
It is tragic that the Astor estate has ended up in a public display of the family's dirty laundry. The advisory community has an obligation to try and prevent situations such as this from developing through due diligence and proper lifetime planning. This process begins, quite simply, by asking the right questions.
 

Michael Mendelsohn, is Founder and President of Briddge Art Strategies Ltd., the premier art succession planning firm in the country. He is a world class art collector, philanthropist, lecturer, and writer on inheritance planning and preservation of art assets. With a background in accounting, taxation, and philanthropic studies, Michael is a frequent continuing education presenter on lifetime and postmortem planning strategies for art assets and has been an invited speaker at the Smithsonian American Art Museum, Philadelphia Museum of Art, Bank of America, U.S. Trust, Museum Trustee Association, Estate Planning Council of Philadelphia and the New York State Society of CPA's, among others, on the artistic, tax-planning and philanthropic needs of collectors. Michael's innovative inheritance planning strategies have been featured in Trusts and Estates magazine and he has been quoted in articles in the Wall Street Journal, The Financial Times, Business Week, Forbes and Worth magazines. He is a frequent guest on the PBS show "Wealth and Wisdom" as well as the author of regular monthly columns published in Art of the Times and Antiques & Fine Arts magazines.
 
The Art Advisor on the Road
On October 3, Michael Mendelsohn held a seminar on art planning strategies for the Institute for Private Investors at the Saint Regis Hotel in New York City.
 
On October 23 and 24, he will be speaking at an event sponsored by The Strang Cancer Prevention Center at Weill Cornell Medical College. This luncheon and program for collectors and advisors will be held at the National Arts Club off Gramercy Park in New York.
 
On November 3, Michael will be speaking to fine art collectors at the Santa Barbara Museum of Art in Beverly Hills, Calif. This event is sponsored by New Renaissance Art International.
 
On November 4, Michael will be presenting as part of the Intrepid Collector Series sponsored by the Ethnic Arts Council. This event will be held at Sotheby's in Los Angeles from 3 to 5 p.m. This seminar is open to the public ($25); call 310-454-7851 for more information.
 
On December 7 Michael will be speaking at Art Basil in Miami and on December 9, Michael is scheduled to speak at a seminar for high net-worth collectors at the Weizmann Institute of Science in Palm Beach, Fla.
 
The Art Advisor in the Media
Michael Mendelsohn was featured in the October 1 issue of Art and Antiques Magazine in an article titled "You Can't Take it With You," by Christopher Hann.
 
 
The professional staff at Briddge Art Strategies is available to brainstorm with you by phone. You can share a hypothetical fact pattern with us and we will explore the planning options available that will best accomplish the objectives of your client. We can also help you understand the issues involved in negotiating with museum personnel, art dealers, auction houses, and planned giving professionals, and the unique requirements for insurance, storage, security, and shipping. For more information about us and the services we offer, please visit us at our website at www.briddgeartstrategies.com, or email Michael Mendelsohn at mendelsohn@BriddgeArtStrategies.com, or call 800-216-3852.
 
If you feel that information in this issue would be of particular interest to a friend or colleague, please feel free to forward it on and encourage him or her to sign up at www.briddgeartstrategies.com.