Establishing New Paradigms Through Contract

Over the next twenty-five years, about 73 trillion dollars will transfer from baby boomers to the next generation, with the potential to massively energize and alter art world economics. Those on the cusp of this unprecedented inheritance will also be the beneficiaries of a legal legacy quietly implemented over the last few decades. With little to no resistance, US courts and lawmakers have all but undone more than three hundred years of precedent in a stealth move to protect US dynastic wealth and fuel the rise of fine art as an asset class. As the assetization of art gains momentum, artists have a unique opportunity to redefine their role in this emerging market.

An obscure body of law known as the Rule Against Perpetuities (RAP) was initiated in the seventeenth century by English courts and expanded upon by the American legal system. This rule sought to limit those with great wealth from controlling property interests forever under the rationale that society benefits from the free transfer of property. Despite the importance of this archaic principle, it has elicited little more than morbid delight from law students, summoning images of zombie claws reaching out from the grave to control property and people. Due to its esoteric articulation and uneven application, the RAP remained an imperfect safeguard against the aggregation of excessive dynastic wealth.

This remained the status quo until the passage of new US tax rules that effectively shield intergenerational wealth from oversight. Wealth managers, seeing that multi-generational management relationships would be greatly enhanced with the demise of the RAP, spearheaded efforts to do just that. Since few people understood or even knew of the existence of the RAP to begin with, the widespread lifting of these safeguards went virtually unnoticed. As a result, those with tremendous wealth are now able to exert more control over how that wealth is managed and inherited longer into the future, potentially facilitating the preservation of wealth over many generations.

With more wealth to manage for longer periods, wealth managers need new financial products to entice and proactively engage the younger generation. The exclusive art market, already funded by the wealthy and subject to relaxed oversight, provides the perfect combination for the creation of a new asset class. The elevation of fine art as a legitimate financial vehicle is instrumental to the increasing normalization of speculative investments, especially when it comes to emerging artists. Though routine in other markets, the art world traditionally frowns on the practice of rapid acquisition and resale of artworks for a quick profit, or “flipping,” due in part to the often negative and sometimes catastrophic consequences on artists’ careers. However, the pressure to offer irresistible returns on investments has challenged this art world convention. Where flipping once warranted blacklisting from galleries, it now draws grudging admiration from those seeking large profit margins earned over a short period of time. Flipping also can be a lucrative option when acquiring the works of hot, emerging artists, who are also more frequently women-identifying or otherwise underrepresented artists on the global market. The upside is that today’s young collectors, though just as eager to signal prestige as their predecessors, are less likely to line their walls with the primarily white male artists of the past, and more inclined to prioritize emerging and diverse artists. After working hard to be recognized and valued, women-identifying artists and artists of color are finally breaking through, but as the object of art assetization. Without a path to true participation, this fraught financial game will likely ultimately prove detrimental for artists.

To counterbalance the shifting of art collecting as a financial instrument, artists must continue to advocate for a version of the art world that includes artists’ long term interests. One option is through contractual resale restrictions imposed by the artists at the point of initial sale. These restrictions range from resale royalties payable upon any secondary sale, to a prohibition on resale within a certain time frame, or the artist retaining a first right of refusal on any future sales. While predictably drawing the ire of collectors who want unfettered control of their property, these conditions placed on art sales are key if artists are to remain engaged as players and not simply servants in the metamorphosis of art from a symbol of power into a vehicle for the creation, transfer, and retention of wealth. Particularly ironic is the criticism that artists desiring to retain a future interest in their artworks are anti-market or greedy. Given the widespread abandonment of the RAP as previously discussed, the only appropriate response must be “what is good for the goose is good for the gander.” When it comes to meaningful market participation and the preservation of artistic autonomy, artists must hold their ground. As new paradigms develop, it will be through negotiated contractual terms that artists achieve partnership if not equity in an ecosystem where the law has already stacked the odds against them.

Against a backdrop of social justice and equity advocacy, working artists have never been in a stronger position to demand more parity in the marketplace. In order for wealthy collectors to continue to successfully leverage art as a means for acquiring and maintaining dynastic wealth, a more transparent and inclusive relationship with artists must be forged. Collectors are most incentivized to negotiate with artists at the point of primary sale, so it is then that artists must insist on terms protecting their legacy and allowing them to thrive spiritually and financially in this burgeoning asset-driven landscape.