- Understanding The Difference between Trusts and Wills.
- Does your Therapist have a Professional Will?
- So You’re A Trustee – Now What? What You Don’t Know, Could Really Hurt You
- Relying on the Internet for Your Estate Planning Can Lead to Disaster
- Life Changes Should Lead to a Review of Your Estate Plan
Lessons Learned: Phillip Seymour Hoffman’s Estate Plan
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Lessons Learned: Phillip Seymour Hoffman’s Estate Plan
Phillip Seymour Hoffman was an incredible actor. His death is a tragic loss to the three kids he left behind, his long-time girlfriend, not to mention the millions of movie fans who were mesmerized by his brilliant performances on the silver screen. Unfortunately, Mr. Hoffman’s estate plan does not have a happy ending either, but it can educate us if we pay attention to it.
Early signs indicate that Mr. Hoffman’s last will was drafted in October 2004, without any updates or revisions. In that will, Mr. Hoffman left his entire estate to his long-time companion, Marianne O’Donnell, and upon her death, to his son, Cooper. A lot has happened since 2004 though—namely, the birth of his two daughters, Tallulah and Willa.
If Mr. Hoffman had created his estate plan in 2014, it’s probably safe to assume that his estate plan would have been much different than the simple will based estate plan he created in 2004.
So what can we learn from Mr. Hoffman’s will?
Have Your Estate Plan Reviewed and Updated Regularly
It’s often said by estate planning attorneys that “a bad estate plan is usually worse than having no estate plan at all.” Because old estate plans are usually outdated, it’s fair to call them “bad plans.”
In fact, many reputable estate planning attorneys now offer some sort of free annual check-up or service plan. Why? Because reviewing and updating an estate plan is critical to maintaining a well-functioning plan. An estate plan should be reviewed every few years to ensure that the big changes in your life are taken into account.
Mr. Hoffman had two daughters after his last will was signed. As such, neither of them is even mentioned in his will. The failure to include additional children may present a problem during the distribution of assets.
A good rule of thumb is to review your estate plan every few years, or at a minimum-- upon the birth of a child, a death, a diagnosis of illness, or a divorce.
Use a Well-Crafted Living Trust—Don’t Rely on a Standard Will.
Mr. Hoffman’s estate plan was built primarily around a will, and not a living trust.
Wills must be probated.
The entire world will now find out about Mr. Hoffman’s assets because probate files are public records for all to see. Mr. Hoffman would have benefited from a living trust since it is neither subject to probate court, nor public disclosure. A family’s privacy can remain intact and the beneficiaries can remain confidential.
Consider Estate Taxes and the Reality that Tax Rates Often Change
It is crucial to plan ahead for estate taxes, even when it appears that your estate might not have a tax liability now. Why? Because circumstances in your life may change, and tax laws and tax rates often do change.
Mr. Hoffman named the mother of his children as the sole beneficiary of his estate. The problem is that Mr. Hoffman and Ms. O’Donnell were not married. This “technicality” automatically subjects the estate to a higher tax bracket.
The estate plan could have prevented a higher tax by naming his children as the beneficiaries and entrusting Ms. O’Donnell to be the trustee. Since Mr. Hoffman and Ms. O’Donnell were not married, all of the estate’s assets beyond the first $5.34 million dollars are now subject to a forty percent (40%) tax hit—not to mention that Ms. O’Donnell’s estate could be taxed again once she passes away (if the estate remains above the threshold).
Be Creative in Your Estate Plan.
Mr. Hoffman’s last will indicates that he wanted to pass along more than just his assets to his heirs. Specifically, it seems Mr. Hoffman wanted to pass along some of his values, as well. Specifically, it appears from his will that he wanted his son, Cooper, to be raised in Manhattan, Chicago, or San Francisco; or at a minimum, for Cooper to visit these cities twice a year. Apparently, Mr. Hoffman loved the culture these cities have to offer, and hoped that Cooper would too. Unfortunately, his estate plan does nothing to promote these values beyond simply making an expression of his preferences.
Had he used a revocable living trust instead of a will, Mr. Hoffman could have actually done more to ensure that his values were being passed along. He could have provided the trustee with distribution instructions that took into account where his kids lived, and perhaps provided incentives for living in those cities. His will simply states his desire, but it can do little else since Cooper isn’t even receiving an inheritance anyway.
Account for Age, Maturity, and Possible Life Events.
It is very common for distribution of the assets to be allocated at different milestones of a beneficiary’s life, especially with little children. Mr. Hoffman simply chose that Cooper would receive half of the assets at age 25, and the remainder at age 30.
Although this is a decent way to plan for the distribution of assets when thinking only about the age of the child, it does very little to consider the maturity of your child, or potential life events surrounding your child.
What if your child is going through a hard time? Divorce? Litigation? Drug use?
It’s not enough to simply grant assets. It’s important to realize that there might be occasions where an inheritance could actually harm your child if not planned wisely.
The best step to take is to plan ahead, and prevent foreseeable problems. Regrettably, we can all learn a final lesson from Philip Seymour Hoffman.