For Jacksonville residents who have been married or in a longstanding relationship, it’s almost certain…
Philip Seymour Hoffman’s $12 Million Estate Planning Mistake
A few moves could have saved the loved ones of actor Philip Seymour Hoffman a lot of money. Even if you don’t have a $35 million estate, like Hoffman’s, there are some things you could learn from it.
Philip Seymour Hoffman’s $12 Million Estate Planning Mistake. Philip Seymour Hoffman was one of my favorite actors. He starred in Charlie Wilson’s War, Hunger Games, Pirate Radio and many more major movies. His roles covered a wide range, from a priest in Doubt to a coach of the Oakland A’s in Moneyball, which evidenced his unique ability as an actor.
Philip was a talented actor … but not a good estate planner. He died in 2014 and was survived by his girlfriend, Mimi, and their three children, ages 10, 7 and 5. He did not want “trust fund kids” so he used a will prepared by his CPA to leave his $35 million estate to his girlfriend. She was to provide for their children.
Philip also stipulated that funds were to be used for his kids to visit major metropolitan areas for the express purpose of providing his children with access to the arts. This is an example of an incentive provision or trust to help motivate his kids to become the adults that Philip wanted them to become.
Additional costs for a “living probate” or guardianship for each of the three children may also be required. In California, this typically would require a court appearance and fees every two years until they each turn 18. Fees can be substantial and will vary based widely upon the circumstances and needs of the minor child and the value, type and number of assets involved. They would receive any share of assets to be distributed to them at that time. Not a good age to receive significant wealth. Complete access to funds may result in his kids becoming the trust fund kids Philip hoped to avoid.
An average probate in California without litigation or other issues takes between nine months and 1.5 years. Philip’s probate will almost certainly take longer due to the size and complexity. After the probate is completed, Philip’s estate will be at risk after distribution to Mimi if she is sued, challenged by her creditors or even in a later divorce if she remarries. That legacy may also be reduced by a second estate tax on her death.
A similar approach could have been used for each of his children to protect them as well from claims against Philip’s legacy throughout their entire lives. He also could have incorporated provisions or bonuses to pass on some of his personal values. For example, Philip wanted his kids to live near or at least visit New York, Chicago or San Francisco at least two times a year to gain an appreciation for the arts and cultural opportunities. He could also have incorporated financial incentives to help motivate his children as they grew up. He could have established specific ages for distributors (staged distributions) so that funds are received when the children are financially mature and able to make wise decisions. For example, one-third at age 25, one-third at 30 and one-third at 35.
We all evolve over our lives as to our ideas of what we “want” as opposed to what we “need.” When I was younger, there was so much that I needed. Now, I find that, while there are many things I want, there is very little that I truly need. A financially mature person is better able to make those decisions.
Advanced estate tax planning could have been utilized to minimize and even avoid the estate tax liability upon both Philip’s death and in the future when Mimi dies. Many unique opportunities are now available for tremendous tax savings with our historically low interest rates. This would significantly enhance the wealth retained by the family. These low interest rates will not last forever.
Advanced income tax planning is also available to minimize the income tax owed in the years to come. The maximum capital gains tax rate for California residents is 37.1% (California and federal tax combined). California has the third highest capital gains tax in the world, beaten only by Denmark at 42% and France at 40.5%. California residents pay some of the highest combined federal and state income tax rates in the nation. So, no matter where you live, planning is more important now than ever before.
Read more related articles at:
Also, read one of our previous Blogs at:
Click here to check out our On Demand Video about Estate Planning.