With the current $5.34 million federal estate tax exemption, has estate planning lost its urgency? Of course, estate taxes still come into play for many wealthy Americans, like the Academy award-winning actor Philip Seymour Hoffman. Unfortunately Hoffman’s untimely death illustrates what can go wrong when estate planning is put on the back burner. Lessons we can take from his estate plan include:
Continually update your will. Mr. Hoffman mentioned only one of his three children. Simply adding the provision “or other children I may have” can cover later births. In addition to keeping your family information up to date, you also may have to adjust your will due to new tax laws.
- Non-traditional or blended families require more planning. Mr. Hoffman left money to his girlfriend, Marianne O’Donnell, the mother of his children. However, marriage saves estate taxes because you can give an unlimited amount to your spouse tax-free during life or upon your death. Although O’Donnell inherited Mr. Hoffman’s entire $35 million estate, since they were unmarried, taxes will devour roughly $15 million. If they had been married, her inheritance would have been tax-free.
- A revocable trust could avoid publicity. Mr. Hoffman’s will is very public because he didn’t go that route.
- Living wills and other documents can help you express your wishes for your heirs. Mr. Hoffman mentioned 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.” 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 was appointed for his children.
If you have not reviewed your estate planning documents or are not sure if they reflect your wishes or if they are tax efficient, we highly recommend that you consult your attorney and financial advisor to discuss this matter.