Philip Seymour Hoffman, an incredibly talented actor, unfortunately died of a drug overdose early this year. He is survived by his three children and their mother (his girlfriend).
As with many other celebrities, such as James Gandolfini and Heath Ledger, his passing prompted media scrutiny into his estate plan—which unearthed several critical mistakes.
So what can you learn from the estate of Philip Seymour Hoffman? While you may not have millions like the late actor, there are several lessons that you can take away:
Leaving money to your kids doesn’t have to make them “trust-fund kids.”
Hoffman’s court documents allegedly show that he refused to follow the advice of his accountant to create trust funds for his kids. He “did not want his children to be considered ‘trust fund’ kids.”
While leaving too much money to children is often a legitimate concern—many well-off parents worry that the inheritance will turn their children into spoiled brats—it is not a guarantee.
With a properly funded trust, you can outline when you want your children to receive their inheritance and even what the money should be spent on. A trust can, for example, set aside money to pay for their education or for any future health care needs. A trust can be set up to pay an inheritance in incremental amounts over a pre-determined period of time, which can ensure that your children don’t blow the entire lump sum.
Failing to plan properly can result in huge tax consequences.
Hoffman allegedly did not believe in marriage, so he never married the mother of his three children, Mimi O’Donnell.
Though he treated her like a spouse and she will inherit the bulk of his estate, the fact that they are not married will have financial consequences. If they had been married, O’Donnell would have received his estate without paying taxes. This is because the IRS allows individuals to pass their estate on to their spouse tax-free under the marital deduction. However, since they were not, Hoffman’s $35 million estate will be taxed at about 40 percent.
This money, unfortunately, could have gone to his family and the causes that Hoffman cared about.
The estate planning lawyers at Martinson & Beason, P.C. hope that you take something from these lessons. Whether you have a large estate like Hoffman or much less, it’s important to plan for the future of your family. Your estate is going somewhere, so why not choose where it goes?