I came across an interesting article recently about the actor Phillip Seymour Hoffman and how he made numerous mistakes in his estate planning that are going to impact his partner and kids.
I thought his story could serve as a cautionary tale.
Hoffman, who died of a drug overdose earlier this year, supposedly did not want to make “trust fund kids” out of his three children. That may be admirable, but the way he went about it will actually do harm to his long-time partner and kids.
According to the story on marketwatch.com, probate court documents reveal that Hoffman’s wishes were that his kids get no part of his $35 million estate and that all of it go to his long-time partner Mimi O’Donnell, the mother of his kids but to whom he was not married.
When a wealthy person dies, he or she can do one of three things: leave the money to their family; leave it to charity; or leave it to the IRS in the form of estate taxes.
Hoffman’s lack of planning maximized the IRS’s take with no benefit to his family or to charities.
While I understand the desire not to create “trust fund kids,” there are ways to do it so they do not become spoiled layabouts.
Now, about 40 percent of Hoffman’s estate over the first $5.4 million will go to the IRS because he and O’Donnell were not married. That’s $12 million.
Much of that could have gone to charities he cared about.
And the matter of no trusts for his kids? What about their education? He could have set up trusts to fund just that. Or trusts to fund medical costs if ever necessary. Or he could have set up trusts that kick in only if the kids accomplish certain goals or earn a certain amount of money on their own. Apparently, he did include his first child in his will, but not the second and third since they had not yet been born when he made out the will.
Another reason why updating wills periodically is important.