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March 03, 2014 at 01:56 PM
It’s easy to see the wealthy and famous celebrities as having it all — including a team of attorneys and estate planners to make sure their multimillion-dollar estates are well cared for. But lately there have been a series of stories of actors and athletes who cost their heirs millions of dollars through easily avoidable estate planning mistakes.
Philip Seymour Hoffman, the Oscar-winning actor who died suddenly in January, is only the latest example of this. Here are some lessons to learn from the stars:
Philip Seymour Hoffman
Considered possibly the greatest actor of his generation, Hoffman died tragically at the age of 46, leaving behind a partner (they never legally married) and three small children, as well as an estate worth roughly $35 million. But Hoffman made two grievous errors that will end up costing the family he left behind millions.
First, if Hoffman and his partner, the actress Mimi O’Donnell, had gotten married, she would have been legally entitled to the entirety of his estate without worrying about estate tax. All of his assets would have passed to her free and clear. O’Donnell was mentioned in Hoffman’s will, but without the spousal exemption, she could be subject to as much as $15 million in estate taxes.
The other problem was that Hoffman signed his will back in 2004, when he and O’Donnell had just one child. Two more daughters have been born into the family since then, but they are not mentioned in his will. (The will’s singing was also before Hoffman won the Best Actor Oscar for his role in Capote, and probably before he had earned the bulk of his estate.)
It would be possible for O’Donnell to create trusts for all three of the children – passing assets to them outside of the estate, and mitigating the estate tax. But it will be much trickier for the two who were left out of the will.
Lessons: Keep your client’s will and other documents updated. It’s simple enough to leave a will open-ended enough to include the possibility of future children, with the simple phrase “other children I may have.” And if you and your partner are not married, it behooves you to consider how this will affect your estate. James Gandolfini
The Sopranos star died last June. His will made sure to provide for both his young daughter and his sisters, leaving 80 percent of his estate to them, and just 20 percent to his wife, Deborah Lin. His son was provided for thanks to a life insurance policy, the assets of which went into a trust upon the actor’s death.
