When Oscar-winning actor Philip Seymour Hoffman died unexpectedly on February 2, he left more than his legacy of notable performances. He also left an estate estimated to have a net worth of $35 Million.Unfortunately, like many celebrities before him who passed away “before their time,” he left the fate of that estate in less-than-optimal shape for his heirs.
At the time of his death, Hoffman’s will, which was almost 10 years old, left the entire estate to his longtime companion Marianne O’Donnell, who is the mother of his three children. And here is where the problems begin.
First, and with the most economic impact on the estate, is that Hoffman and O’Donnell were never married. Since the State of New York does not recognize common-law marriages, O’Donnell does not have the protection of estate tax breaks, aka “marriage exemptions,” that spouses normally receive. Because of that, and the fact that Hoffman did not utilize any of the other estate-protection tools available to him, she will probably have to pay inheritance taxes on the value of the estate. According to a CNBC report1, that could mean a tax bill of between $12 – $15 Million.
Poor Estate Planning: Taxes can Devour Your Assets
According to Forbes.com2, all totaled, Hoffman’s estate would owe combined federal and state estate tax of more than $15.1 million. And since the marital deduction does not apply, any assets that remain when O’Donnell dies could get taxed again.
Had Hoffman just established a family trust for O’Connell and his children, a good portion of the $35 million estate could have protected from being excessively taxed.
Forbes reported that the will did give O’Donnell the right to convert all or part of her inheritance into a trust. Any assets that went into the trust would bypass her estate and not be taxed when she dies. However, the trust referred to in the will only mentions Cooper, not his two younger sisters who were born after the will was signed. It provides that he’ll get half the trust principal when he reaches age 25, and the other half when he turns 30.2 This raises other issues about the successful transition of wealth to future generations, which we will discuss further in the future.
Your Final Wishes Need to be Made Clearly to Avoid Conflict
far, far away from Hollywood — this according to the actor’s will.
To further complicate matters, at that time he executed his will in 2004, he left “last wish” instructions for his son Cooper (now 10 years old) about where he wanted the child to be raised.
In a document obtained by outlets including TMZ and the New York Post, which has it posted online, Hoffman wrote: “It is my strong desire … that my son, Cooper Hoffman, be raised and reside in or near the borough of Manhattan in the state of New York, or Chicago, Illinois, or San Francisco, California.”3
However, the document was created before daughters Tallulah (7) and Willa (5) had been born, and therefore did not provide any instructions for their upbringing. Not only that, but at the time of his death, Hoffman and O’Donnell were living separately. So it’s impossible to know exactly what his actual final wishes might have been.
It all sounds like it could have been the plot for one of Hoffman’s movies. But it clearly exemplifies the importance of a well-thought-out and prepared estate plan to protect your assets as well as your family, and avoid the risks of wealth transfer in the event of your death.
For more information about how early estate planning can protect your legacy and your family’s inheritance, contact us.
1. Here’s why Philip Seymour Hoffman’s will is ‘a mess’, CNBC (2/21/2014)
2. Philip Seymour Hoffman’s Will Raises Legal Problems, Forbes.com (2/20/2014)
3. Philip Seymour Hoffman will: I want my son to be a New Yorker, LA Times (2/19/2014)