Celebrity deaths are often followed by a very public battle between heirs over the celebrity’s assets, fame, and residual income. This CNBC article entitled “Here’s Why Philip Seymour Hoffman’s Will is a ‘Mess’” helps others not make the same mistakes.
Mistake Number 1
Hoffman’s will is over a decade old. Wills should be changing documents because life changes. After major life changes, a will and your entire estate plan, should be reviewed to determine if any changes are necessary. Hoffman’s will left his estate to his long time girlfriend and mother of his children, Marianne O’Donnell.
Hoffman’s will may only mention his one daughter that was born at the time. After he wrote his will, he had two additional children. In California, a child born after a parent’s will is executed is entitled to the child’s intestate share; however, there are exceptions and this statutory provision should not be relied upon to allow all your children to inherit your estate.
This was probably the biggest mistake in Hoffman’s estate planning because it will create uncertainty and could create a battle between siblings for their shares of Hoffman’s estate.
Mistake Number 2
Hoffman’s estate plan did not take into account estate and other taxes. Because he left the bulk of his estate to his girlfriend, she will still need to pay estate taxes. If the couple were married, she could have inherited his estate tax free. The number is huge . . . O’Donnell may need to pay up to $11.9 million of a $35 million estate, nearly 1/3 of the estate!
There could have been a few ways to avoid the large estate tax bill, including creating trusts for his girlfriend or purchasing a life insurance policy to help pay for the estate tax bill. However, perhaps the best way to avoid the large estate tax bill would have been for the couple to have been married.
Mistake Number 3
Hoffman created a trust for his one child (the one born before he wrote his will). The trust gives all assets to the child when the child turns 30. Because of the size of Hoffman’s estate, it may have been better to keep the trust and not provide an outright gift of all assets at a certain age because upon 30, Hoffman’s estate to his child will not be protected from creditors, liens, judgments, or ex-spouses. It is important to note that are ways to create trusts for beneficiaries in order for them to be protected from creditors or reckless spending.
Although Hoffman had an estate plan unlike some other famous celebrities who have recently died, the fact that it had not been updated in ten years makes it problematic for several reasons along with the huge estate tax bill that will now be owed.