Another celebrity has died unexpectedly, leaving an incomplete estate plan that will result in a huge amount of estate tax, and poorly defined beneficiaries. This time it was Phillip Seymour Hoffman, the acclaimed actor who died in early February. Others have included Heath Ledger in 2008 (left his estate to family, with no provision for his daughter), Michael Jackson in 2009 (money and guardianship issues), Adam Yauch (Beastie Boys fame, who left a guardianship issue to be resolved by whether it was an odd numbered year or an even numbered year) in 2012 and James Gandolfini in 2013 (see the article for details).
In Hoffman’s case, his will was drawn up ten years before his death when he had one child with his long-time partner Mimi O’Donnell. They were still not married when he died, but they had two additional children who were not included in the will. The will left a trust for his ten year old son, the assets of which he will receive outright at the age of 30. The rest of Hoffman’s estate went to O’Donnell. New York does not recognize common law marriage so the marital deduction planning that married couples benefit from will do her no good. She will almost certainly face federal estate tax at 40% on amounts above $5.34 million and New York state estate tax on everything over $1 million. The estate is believed to be about $35 million, and the combined estate taxes could take between $12 and 15 million from the estate!
Lots of estate planners have commented on the poor planning, especially on the lack of tax planning for someone with a relatively large estate. Also many have commented on the fact that no update was done despite some major life changes such as the birth of two additional children. Nor did Hoffman provide separately for the children, instead he left most of his assets to the children’s mother. While state law protects spouses from being disinherited, no state prevents children from being disinherited. The Hoffman children could be disinherited if their mother decided to leave the money she inherited from Hoffman to someone else, such as her own family members or a new husband.
Hoffman could have moved assets out of his estate by making gifts to irrevocable trusts for benefit of his children. The lifetime gift tax exemption is the same as the estate tax exemption. He could have married their mother, potentially sheltering $10.68 million from federal estate tax. Experts have questioned the wisdom of ending the trust for his son at the age of 30. If the trust continued indefinitely, it would be protected from creditors, divorcing spouses and potentially estate tax. When your child is a new born, 30 may seem like a long way away, and an age at which a child should have enough skill to manage the wealth. Who knows, but it would help to update the estate plan periodically.
