Not that anyone reading this plans on mixing up a cocktail of illegal drugs and shooting them into one’s body, the death in February of actor Philip Seymour Hoffman at the relatively young age of 46 offers lessons of what not to do in your estate plan.
The last will and testament of Hoffman was signed in October 2004 when he had only one child, Cooper, now eleven years of age. Hoffman subsequently fathered two daughters, Tallulah and Willa, neither of whom is mentioned in his will.
Reports indicate that Hoffman’s estate is valued at approximately $35 million. He left everything to his longtime companion, Marianne O’Donnell, who is also his children’s mother. But Hoffman and O’Donnell were not married at the time of Hoffman’s death. To make matters worse, Hoffman is a resident of New York State, which imposes another 16 percent state level death tax. All told, the combined estate tax could reach more than $15 million.
How much would that tax had been if they were married?
Zero.
And how much of the remainder of that estate will be taxed in O’Donnell’s estate when she dies?
All of it.
So in essence, because they chose not to get married, all of Hoffman’s estate will be taxed twice. Once when he died and again when O’Donnell dies.
Hoffman’s will does give O’Donnell the right to disclaim assets so that she can use some of his exemptions to get the assets to the children. But because Hoffman didn’t update his will, the disclaimer would likely only benefit Hoffman’s son Cooper, leaving the other two children out. Moreover, the trust inside of Hoffman’s will provides outright distributions at age 25 and 30 rather than a continuing trust to protect the assets from a spendthrift beneficiary, divorcing spouses or other creditors and predators.
We don’t know if Hoffman had any life insurance policies or IRA accounts that he left to his children. If he did, it would appear that a court imposed guardianship over the assets would be necessary since the children are minors. It is also possible that Cooper would receive a large inheritance while Tallulah and Willa get nothing.
O’Donnell may have to look into getting a court-appointed guardian ad litem to represent the interests of Tallulah and Willa, as they may be entitled to assets under state law that treats afterborn children equally. The problem with the application of that law is that the children would likely have access to the funds at the young age of 21. Due to the lack of proper planning, O’Donnell may be boxed into the choice not to make any disclaimers on behalf of the children.
The lack of planning by Hollywood actors is not uncommon. Heath Ledger, who also died from a drug overdose, hadn’t updated his will to include his daughter Matilda Rose, who was two when he died in 2008.
Ledger’s three-page will, signed five years before his death (at the young age of 24) probably seemed adequate at the time. It called for the bulk of his estate to be put into trust and divided into two shares. The first half benefitted his parents, and the other half split between his three sisters.
Between the time that Ledger signed his will and died, he had become a famous, wealthy actor. A nasty mess of legal issues ensued to determine who was his rightful heir. The answer depended upon Ledger’s domicile – as he maintained residences in Australia, New York and California.
Fortunately for Matilda, Ledger’s parents and sisters chose to avoid courtroom drama and ceded the estate (reported to exceed $20 million) to Matilda. This may or may not have been what Ledger would have wanted.
Had Ledger and Hoffman paid attention to how their wills would distribute their growing fortunes, determining their intent and carrying out their plan could have easily been accomplished.
None of us knows when our time will come. But for those that have any degree of net worth (even if not up to Hollywood actor levels) it’s always a good idea to stay on top of your estate plan.
©2023 Craig R. Hersch .Learn more at www.sbshlaw.com
