Jul 1, 2005 12:00 PM

, By Michael Mendelsohn, president and founder, Briddge Strategies for Art, Heirs & Philanthropy, New

By Michael Mendelsohn, president and founder, Briddge Strategies for Art, Heirs & Philanthropy, New

Many art collectors try to avoid paying sales tax, capital gains and, ultimately, estate taxes. They craftily build collections below the radar by paying cash, using money orders, and shipping art to states that don't collect sales tax. Many also never insure their works and, if they do insure them, pay cash or use money orders to avoid leaving paper trails.

But complications inevitably arise when artwork is transferred to the next generation using the “empty hook” method of estate planning. The idea behind this gambit is simple: When a collector passes away, art works are whisked out of the collector's home by the heirs. In many instances, collectors place tags with their children's names on various pieces so that the kids know who should take what. Possibly, the children think: “No one knew dad and mom owned it!” So they leave behind the “empty hook,” and move the painting or sculpture into their homes, never giving it a second thought.