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.
This post comes from Kelley Holland at partner site CNBC.
Philip 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.
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
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.
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”
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!
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