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Detroit’s Bankruptcy and Your Charitable Donations

Last month, federal proceedings began to determine whether the city of Detroit is eligible to file for bankruptcy. As part of the city’s process to review its assets, Detroit hired the renowned auction house Christie’s to appraise the priceless works of art by Picasso, Monet, Rembrandt, and others housed at the Detroit Institute of Arts.

This action is controversial because it could lead to an art sale and a potential violation of ethical guidelines prohibiting a museum from deaccessioning – selling art from its collection – for any purpose other than acquiring more art. Institutions who violate these guidelines risk losing accreditation and creating controversy in the art world.

Aside from affecting a museum’s collection, Detroit’s move is also extremely relevant to clients or donors. Clients often donate art to museums to meet their tax or estate planning goals, or simply to improve their community. Detroit’s bankruptcy filing is another warning that it is essential to have a carefully drafted agreement before donating property to a museum.

Most art is donated without strings or explicit constraints on sales, so a clearly written document ensures that the donor’s wishes are known and that the museum will abide by those wishes. For example, agreements may explicitly say that a particular piece may never be sold or may never be sold for operating expenses of the institution.

Attorneys and donors should also inquire about a museum’s deaccessioning policies. Since Detroit’s bankruptcy filing, the DIA has amended its deed of gifts to clearly state that the donated work can only be sold to buy more art. But most institutions are not so clear, relying only on ethical guidelines.

As museums face financial difficulties and courts may be more likely to allow the sale of donated artifacts, traditional ethical guidelines may no longer be enough to prohibit a sale. Attorneys and donors would be wise to seek additional protections.

#charitabledonations #nonprofits #tax

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