Oscar winning actor Philip Seymour Hoffman died unexpectedly on February 2, 2014 in his New York City apartment from an apparent heroin overdose. He appeared in more than 50 movies in a career that spanned less than 25 years and was best known for his roles in films such as “Magnolia,” “The Talented Mr. Ripley,” “The Ides of March,” and “Capote,” which earned Mr. Hoffman an Oscar award for best actor. He was 46 years old and is survived by his three children from a relationship with his long time-partner of 14 years, Mimi O’Donnell. His children are 10 year old son, Cooper, and daughters Tallulah and Willa, ages 7 and 5, respectively. Mr. Hoffman left behind an estate that is worth an estimated $35 million, which does not include future royalties.
Mr. Hoffman’s Estate Plan
At first there was a great deal of speculation as to whether Mr. Hoffman had written an estate plan. If not, a New York probate court would likely have determined that the estate be equally divided between his three children. Since Mr. Hoffman had never married Ms. O’Donnell, under probate law, she would not have received a share of the estate. Since all three children are minors, they would not have inherited property until they reached the age of majority, 18 in most states, including New York. (There are several exceptions: Alabama – 19, Nebraska – 19 or upon marriage, Puerto Rico – 21, and Mississippi – 21). The children’s assets could have been placed in a Uniform Transfers to Minors Act account, and the court could have appointed someone to manage the assets until the children reached 18. After each child reached age 18, he/she would receive the entire share of his/her inheritance.
It turned out, however, that Mr. Hoffman had written a Last Will and Testament. His thirteen-page Will was recently filed in the New York Surrogate Court. It was written in October 2004 and was made when his son, Cooper, was only one year old. The Will leaves all of Mr. Hoffman’s assets to his partner, Ms. O’Donnell. If Mr. Hoffman and Ms. O’Donnell had died at the same time, then his son, Cooper, would have inherited the entire estate at the age of 18. Ms. O’Donnell’s sister, Suzanne, was named as a successor guardian. An unusual provision in the Will is that Mr. Hoffman’s desired that his son, Cooper, be raised in Manhattan, Chicago or San Francisco because of the “culture, arts and architecture” that such cities offer. And if Cooper did not reside in any of the three mentioned cities, then Mr. Hoffman desired that his son visit these cities at least twice a year while he was a minor. New York estate planning attorneys have stated that this unusual provision is not enforceable under New York law and that is likely why Mr. Hoffman stated in the Will that it was his “strong desire, and not direction” to have his son live in one of these cities and it was his “strong desire, and not direction” that his son visit such cities twice a year if he did not reside in one of the cities.
It appears very likely that Mr. Hoffman had not reviewed his Will for many years as it did not include his two daughters as beneficiaries of his estate. Although Mr. Hoffman may have engaged in some type of tax planning, it is not reflected in his Will. According to Las Vegas attorney and valued strategic partner S. Craig Stone II, Esq., “given the current $5.34 million federal estate tax exemption and the 40% tax on the excess over the exemption, it is estimated that Mr. Hoffman’s estate could owe $15.1 million in federal and state estate taxes.”
Mr. Hoffman could have engaged in tax planning to avoid all or most of the Federal and State estate taxes. Trusts and other special estate planning tools could have been implemented to avoid estate taxes. Philanthropy could also have been used to reduce or eliminate estate taxes and could have been used to support specific charities or organizations that Mr. Hoffman was supportive of, or he could have even started his own foundation to support the “culture, arts or architecture” that was so important to Mr. Hoffman.
Lessons to learn
It is important to periodically review your estate documents every few years to see if there has been any change in the family situation (such as births, deaths or divorce), special needs (such as special medical needs or substance abuse issues), assets (such as purchases of real or personal property, or sale of such property) or changes in Federal or State estate tax laws. And especially when you are going through a personal crisis, make an estate plan, or review an estate plan if you already have one. Mr. Hoffman had suffered drug and alcohol issues while he was in college and had been sober for 23 years when he relapsed and checked into rehabilitation in May 2013. After completing his rehabilitation, Mr. Hoffman should have made it a priority to make an estate plan or review his plan if he already had made one.
When minor children are involved, it is important to have estate documents drafted so that you can choose the appropriate people to take care of your children if you should die. It is important to have a guardian named in your estate plan and you should also have a successor guardian named in case your first choice is unable or unwilling to become the legal guardian of your children.
It is also important to properly manage when the distribution of assets to your children should take place. If, for example, Mr. Hoffman did not have an estate plan, then under probate law, his children will receive their entire one-third share of their father’s millions at the age of 18. Giving millions of dollars to an 18 year old is not a wise idea. I would advise that a “discretionary trust” be drawn up so that the estate is provided to the children over a period of time, such as 1/3 at age 25, 1/2 at age 35, and the rest at age 45. The discretionary trust would also provide creditor and divorce protection to Mr. Hoffman’s three children and keep the assets free of Federal estate tax and State inheritance tax if there is one in the state of the child’s domicile.
Review ownership of all of your assets. The $4.4 million co-op apartment was co-owned by Mr. Hoffman and Ms. O’Donnell and will solely be owned by Ms. O’Donnell without having to go through probate proceedings if Mr. Hoffman does not have an estate plan. Bank accounts need to be in the name of both partners or at least have payable-on-death designations. If Mr. Hoffman had investments in brokerage accounts, insurance or retirement assets, then he should have reviewed the designations for those assets and changed the beneficiary to Ms. O’Donnell, or whomever else he desired to inherit the asset.
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Written by R. J. Kelly – February 2014