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Why Philip Seymour Hoffman's will is 'a mess'

The actor, who died earlier this month, hadn't updated his will in 10 years. Experts say that, along with other troubling issues, he didn't pay enough attention to estate taxes.

By Money Staff Feb 21, 2014 2:51PM

This post comes from Kelley Holland at partner site CNBC.

CNBC on MSN MoneyPhilip Seymour Hoffman was an Oscar-winning actor who played everything from Truman Capote to a priest, but it appears he didn't do so well with his estate planning.

Hoffman, who died in early February of an apparent drug overdose, had a will that was a decade old. In addition, its structure has left it available for public viewing, something celebrities and others can easily avoid.

The estate plan itself is also problematic, experts say -- perhaps because the lawyer who drew it up appears to specialize in real estate rather than trusts and estates.

In any case, with the exception of a trust for the child he had at the time the will was signed, Hoffman appears to have left his estate to his longtime companion and mother of the child, Marianne O'Donnell. It is not clear if the two children the couple had later are mentioned.

Wills are statements of feelings as much as they are instruments of tax planning, and it is impossible for outsiders to know the actor's emotional goals. But from a tax efficiency perspective, experts say, the will's quality is clear.

"He made a mess," said David Mendels, director of planning at Creative Financial Concepts, a financial planning firm in New York.

Mendels points out that because Hoffman and O'Donnell were not married and New York state does not recognize common law unions, she will probably pay estate taxes on the portion of the estate left to her.

How big a tax bite is that? Hoffman is said to have amassed a $35 million estate, and if he left all of it to O'Donnell, the state and federal tax bill would be $11.9 million, according to Richard Shapiro, a trusts and estates lawyer with Blustein Shapiro Rich & Barone.

Christina Mason, a partner at Kelley Drye and a trusts and estates expert, said the tax bill could be higher, perhaps close to $15 million, if Hoffman in fact had an estate of $35 million.

"It's a big number," she said.

Philip Seymour Hoffman at the 'Moneyball' film screening at the Toronto International Film Festival, Toronto, Canada © REX/Canadian Press
Hoffman could have done several things to make his will more tax-efficient. Giving monetary gifts small enough to avoid taxes during his lifetime would have been one approach, and he may have done some of that. He also could have established trusts that would have sheltered some of O'Donnell's inheritance from taxes, according to Mendels.

Shapiro said Hoffman's younger children are likely to be provided for even though they do not appear to be included in the document. A provision in New York law says that if children are born after a will is executed and an older child has been provided for in some way, the amount set aside for offspring in the document would be divided among all the children.

That provision may not apply in this case, Mason said, but as all three children are O'Donnell's, "the odds are they'll end up OK." Even so, she said, "the one rule in trusts and estates is you can disinherit your children. She could remarry and leave everything to a new husband, who then disinherits the kids."

That could have been avoided with properly structured trusts for each child, she added.

Hoffman is hardly the first star to leave a will that creates problems after his death. Michael Jackson's will has posed enormous challenges for his family. And James Gandolfini's will left his estate with a hefty tax bill, among other problems.

How could Hoffman have written a more efficient will?

For starters, experts said, he should have married O'Donnell, if only for tax purposes.

Daniel Rubin, a partner at Moses & Singer specializing in trusts and estates, said Hoffman also could have better structured the child's trust. As it stands, Cooper Hoffman will inherit the trust assets outright at age 30, and that can be dangerous.

"Money that stays in trust is protected from creditors, ex-spouses and to a large extent, estate taxes in the child's estate," he said, adding that very few of his clients are still giving children trust assets at a fixed age. Instead, his clients set it up so that at a certain age, their child can choose who the trustees will be.

"It keeps the protection from taxes, ex-spouses and creditors, but gives the child effective control over his trust," Rubin said.

Shapiro recommended more frequent estate planning checkups.

"The fact is that the biggest blunder he made was not updating his estate," he said. "I would not be surprised if his dispositive wishes had changed. You never want to go 10 years without doing planning."

More from CNBC

Feb 23, 2014 7:41PM
A drug addict didn't pay attention to his finances or his taxes. There's a surprise.
Feb 21, 2014 5:00PM
IRS gets almost $12 million of that because they never got married.  If they had, there would have been no tax now.  That would have been some pretty good tax planning.
Feb 23, 2014 1:46PM
Feb 24, 2014 9:44AM
I can't help but wonder why this actor's life, death and financial affairs have become such an issue with MSN?  I am sure he will be missed by many from a personal and professional standpoint but given his moderate fame it's hard to see why every aspect of his life is given such scrutiny, from his death nearly 2 months ago, his addictions, rehabilitation, relapses and subsequent investigations, arrests of his cohorts.  Is there an agenda to be pursued here?
Feb 24, 2014 3:03PM
The only winners be be the lawyers.
Feb 23, 2014 3:42PM

What this article really demonstrates is the utter foolishness and greedy behavior of the government.  When people can avoid estate simply by choosing who to give your money to, does that not in itself show how the estate tax is faulty?

Take Warren Buffet and Bill Gates.  Two mega billionaires.  Thru estate planning, these two have essentially cut their federal and state estate tax liability to zero.  Their children will/are  fiduciaries of the charitable trusts, drawing huge salaries and other benefits and having immense power and influence.  And that is just one of the legal maneuvers they have employed.

Dump the whole sordid mess called the federal estate tax.

Feb 24, 2014 8:37AM
It's wrong for the government to tax any estate, at any time for any reason.
He clearly never cared about his family. Quit celebrating this losers career.
Feb 24, 2014 8:42PM
The problem is that the story is written with the assumption that Hoffman would have wanted to avoid taxes.  He was a liberal and lived his life believing the government should help the less fortunate and should pay for it with taxes collected from those (such as himself) who could afford it.  If he had tried to avoid paying taxes, people here would be screaming about what a HYPOCRITE he was.  Apparently, he was consistent and put his money where his mouth is and the full tax burden will be paid.  The mother of his children will still have more than enough money to take care of them, even after the large tax bill is paid.
Feb 23, 2014 1:49PM

Democrats believe (they say) in helping the common man. The problem is they want to help by stealing from others by forcing them to pay taxes (and pocketing some for themselves). They want to force people to accept everything they believe in but they do not believe in free thought. For all their talk, they do not really believe in free will. You only have free will if you think like they do.

            Republicans believe (they say) in morality & family values. Great ideals but they want to decide, “What is a family”. They say they believe in freedom but they want to restrict what you can see, read and hear. They believe in free will but don’t trust you to use it properly. You should be free to be irresponsible, free to sin, but you must also be prepared to accept the consequences of your actions.

            Libertarians believe in free will, and they show it. You can live as you choose as long as you don’t harm others. You have the freedom to choose to help those that you feel are in need. You are expected to help your fellow man but you are not forced.

If you do something wrong, it’s your problem and your responsibility to make it right. You are free to worship in your own way or not. You are free to express your thoughts and feelings and no one is allowed to stop you because they are offended. If they are offended they can choose not to watch, read or listen. That is their choice.


“Live and let live, I believe. See what it’s like to be free”

                                                            Jon Oliva

Feb 28, 2014 1:21PM

None of this matters!  He is dead, and certainly doesn't give a shyt about a $15 million estate tax or his lack of planning.  And if his mate is a smart woman, she will take her $20 million (- $2 mil in attorney fees) and grab her children by the hand and live la vida loca! 

Feb 24, 2014 8:43PM
These are the problems of wealthy people. The majority of Americans have no such concerns. 
Feb 24, 2014 1:59PM
So... who got custody of his dope stash?    This guy never really thought of anyone but himself. When you start a family, you plan for your children financially, not just worry about raising them near architecture and the arts so they can stare at buildings and watch theater.
Feb 24, 2014 3:16PM
These 'hind-sight" looks at how he should've planned his estate are interesting at best. According to this report, they should have gotten married for the 'sole' purpose of lower taxes. Plus, Hoffman should have set up Trusts for everyone he ever met that he might have wanted to leave money to. Then it presents the very low probability case of O'Donnell getting remarried, then of course passing (probably by heroin, too) and leaving everything to the future husband who "disinherits the children."  What about the probability of O'Donnell blowing it all at the casino, or investing in the next Madoff ponzi investment scheme. Those have more probability than the scenario presented. So, the question should be, since there was no trust for 'everyone' set up, (I know I have them set up for relatives and even my dog, because I plan on dying sometime before July this year) how does one go about minimizing the estate tax on 'receiving' an inheritance such as this? Seriously, stop the tabloid style and provide answers to the questions you raise. Wasn't that part of creative writing 101, high school?
Feb 22, 2014 2:08AM
The fact that common law marriage is not recognized is pretty ridiculous to begin with....government should not be "licensing" people to enter into marriage which is the problem right there.  Common law marriage was the rule of law and the Constitution does recognize the common law within it.  Anyway, sure he didn't plan on dying and all this talk of trusts just means that others also would like to keep that money within their control for as long as possible as most trustees are banks or lawyers so that seems an idea that most of those who are in that profession would espouse.  By 30 that young man will be a real adult and not a "young adult" even, so I guess he could get his own financial advice at that point.
Feb 24, 2014 8:44PM
Maybe he just wanted the Federal Government to have the money rather than his money grubbing relatives.
Feb 21, 2014 3:49PM
I think the liberals in Hollywood should for go all estate planning. After all according to them the "government" knows best what to do with other people's money. And really is it "fair" that someone can amass a 35 million dollar estate. Why wasn't that money given to "the poor"?????
Feb 21, 2014 3:26PM
Well, what else would you expect from a junkie?
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