The Oscar-winning actor Philip Seymour Hoffman was incredibly successful at his craft. A New York Times article published shortly after his untimely death at age 46 refers to Hoffman as “perhaps the most ambitious and widely admired American actor of his generation, who gave three-dimensional nuance to a wide range of sidekicks, villains and leading men on screen and embraced some of the theater’s most burdensome roles on Broadway.” Sadly, when Hoffman died of a drug overdose in early February, part of his legacy was leaving his heirs an estate planning disaster.
For many of us, estate planning has lost some of its urgency because of the new $5.34 million federal estate tax exemption. However, Hoffman’s estimated $35 million estate exceeded the exemption limit and, therefore, required significant planning. His lack of advance planning illustrates the problems that can arise for anyone who puts estate planning on the back burner. Lessons we can learn from Hoffman’s mistakes include:
- Wills should be continually updated. Hoffman’s will was more than a decade old and mentioned only one of his three children. Simply adding the provision “or other children I may have” can cover later births. Notably, Hoffman’s younger children likely will be provided for even though they do not appear in his will. A provision in New York law notes that if children are born after a will is executed, the amount set aside for an older child who is mentioned would be divided among all the children. However, each state has different laws so be sure to find out about the specific provisions in your state.
- Non-traditional families require more planning. Hoffman left all his money to his girlfriend, Marianne O’Donnell, the mother of his children. Because they were not married, federal and state taxes will devour an estimated $15 million of his $35 million estate. Of course, had Hoffman and O’Donnell been married, her inheritance would have been tax-free because you can give an unlimited amount to your spouse tax-free during life or upon your death. Moreover, any assets that remain at O’Donnell’s death could get taxed again. Of course, O’Donnell could choose to disclaim all or part of her inheritance and place the assets in a trust, but that would take time and require additional estate planning.
- Planning can minimize taxes. Most people want to ensure that their assets are distributed to their heirs with minimal tax impact, but the exemption limit and tax laws change constantly. Of course, your wishes could make it impossible to avoid stiff taxation. For example, perhaps you want to leave all your assets to a sibling. Or, like Hoffman and O’Donnell, perhaps you decide not to marry. Short of marrying O’Donnell, Hoffman could have lessened Uncle Sam’s tax bite by giving monetary gifts small enough to avoid taxes during his lifetime. He also could have established trusts to shelter some of O’Donnell’s inheritance from taxes.
- Revocable trusts can safeguard your privacy. Wills go through very public probate courts, but trusts do not. We know the details of Hoffman’s will because he chose not to establish a revocable trust. Actors Keith Ledger and James Gandolfini made the same mistake, and their wills also ended up in probate. As expensive, time consuming, and public as probate is, it’s surprising how many heirs of celebrities end up there. Remember the years of painful public arguments over settling Jerry Garcia’s will? You can avoid any publicity for very little money by creating a revocable trust to handle the disposition of your assets. Your will would then simply state that everything you own goes into the revocable trust, which remains private.
- Living wills can help express your wishes for your heirs. Hoffman specified in his will that he wanted his son, Cooper Hoffman, to be “raised and reside in or near the borough of Manhattan in the State of New York, or Chicago, Illinois, or San Francisco, California” so that he could be “exposed to the culture, arts and architecture that such cities offer.” However, that provision was in a section that applied only if O’Donnell was not living at the time of his death and if a guardian had to be appointed for his children. These details matter. Therefore, if your will conveys specific wishes on childrearing, discuss the details with your lawyer and review those sections of your will very carefully. Also, it’s often best to supplement your will with a “living will” or another such document that offers supporting detail.
The important lesson from Hoffman’s estate debacle is that an estate plan should not be a static document that’s drafted once, signed, and placed in a drawer. Rather, estate planning should be an ongoing activity, informed by changes in your life and changes in tax law.
To ensure that your will carries out your wishes, think of your estate plan as a business plan. Just as you review a business plan on a regular basis and make adjustments, so, too, should you re-examine and update your will. For many clients, we serve as the point person who coordinates these reviews with estate planning attorneys — and, in some cases, we provide the nudge you need to schedule the review. Because estate law is complex and ever-changing, ensuring that all your wishes will be met requires the expertise of an estate planning attorney who is well-versed in your state’s laws. In fact, the problems with Hoffman’s will could be because it allegedly was drafted by a real estate attorney.
If you have questions or concerns about your estate plan, please schedule a meeting with your financial advisor and estate planning attorney.