The tragic death of 46-year-old actor Philip Seymour Hoffman has left many in and out of the film industry stunned. However, beneath the loss of life lies another tragedy that will impact those closest to him: the state of his estate. Certain decisions made by the actor and his loved ones may result in federal and state taxes eating up to 40% of his net worth. There are important lessons that can be learned from his estate planning.
Mr. Hoffman’s will was created in 2004; it stipulates a trust for his oldest child and leaves the remainder of his (approximate) $35 million estate to his longtime partner and the mother of his children. Here’s what you can learn from his estate plan:
Save money by marrying your partner. Yes, you should love the one you’re entering into matrimony with; however, marriage also has some practical financial benefits. Philip Seymour Hoffman was not married to Mimi O’Donnell despite the fact that the two had multiple children together and had been with one another for years. Had they been married, she would have qualified for the unlimited marital deduction under estate tax laws. What does this mean? If the couple had been married, approximately $12 million more would have gone to Ms. O’Donnell rather than the IRS. That’s just what she’s looking at in federal taxes; New York will also be getting a share of the estate.
Treat your estate plan like a spring cleaning chore. You should review your estate plan, including your will, on an annual basis and update it as needed. This review process doesn’t have to take long; just consider any big changes that have occurred in your life over the past year, such as the addition or loss of assets, marriage or divorce, or the birth of a child. Philip Seymour Hoffman’s will was last updated in 2004. Between then and the time of his death in 2014, he welcomed the addition of two daughters. Their share of his estate isn’t entirely clear since they aren’t mentioned in the will. Daily Finance reports, “Because he didn’t update his will to specifically mention the girls, it’s unclear whether all three [children] will be treated equally without extra effort from O’Donnell to even the playing field.”
Be prepared for the unexpected. Most of us don’t have assets anywhere near as large as what Philip Seymour Hoffman had. Due to a lack of assets and human nature to procrastinate, many individuals aren’t in a hurry to create an estate plan. However, Hoffman’s tragic death shows how easy it is to create unexpected estate problems. While you’re still healthy and alive, consult with an attorney to determine any potential problems as well as the most appropriate solution.