Published October 8, 2014 by Jason Smolen
According to media reports, the late actor Philip Seymour Hoffman didn’t leave any money to his three children directly because he feared they would become “Trust Fund Kids”. While his concerns were understandable—many people worry about giving their children too much money too soon—there are a number of estate planning strategies that he could have used to better provide for his family after his death. Hoffman died in February 2014, leaving an estimated $35 million estate to his long-time companion, Marianne O’ Donnell.
Jason Smolen suggests that Hoffman’s estate may face a large and unnecessary estate tax bill because the actor and O’Donnell weren’t married. His estate may be hit with both federal and New York state estate taxes, which could total $14 million dollars. Had they tied the knot, the money would have passed tax free from Hoffman to O’Donnell.
As for the “Trust Fund Kids” concern, Smolen certainly understands the issue. “Earning and spending money are two different activities,” says Smolen. “If your children haven’t engaged in the first, they may not manage the second well.” A possible solution is to work with an estate planning attorney to set up a revocable living trust crafted to provide your children with a secure future without creating a disincentive to work. The trusts can provide for the payment of expenses associated with college, health and financial issues, and can make distributions when the children have achieved certain life goals or even match salaries once they’ve grown and started careers.
Another key is naming a trustee who will make sure your trust is appropriately administered. “It should be someone who understands your values,” says Smolen. In Hoffman’s situation, while his partner may know and understand what he wanted for the children, she will still be making those financial decisions without guidance or restrictions. Essentially, without a trust to set parameters, O’Donnell can do whatever she wants. While there’s no reason to believe she’ll misspend the money or deprive the children, life is unpredictable—she could be hit with illness, emergencies or even a future divorce that depletes the funds. Further depending on what estate planning O’Donnell does before she dies, the money could be taxed again, whether she gives it to the children, charity or to family and friends.
Smolen points out that trust funds aren’t just for the very wealthy. They are useful tools for anyone who will leave behind an estate and wants some control over their legacy. Also, a trust can help heirs avoid the delay caused by having an estate go through probate, where all the assets in the estate are legally accounted for before distributions are made.
A revocable living trust can be altered, updated and even cancelled. By spelling out your wishes, you can control how and when money passes—and to whom. Like many others, Philip Seymour Hoffman was legitimately concerned about how their inheritance would impact his children—but unfortunately, the lesson of his will is that he did not do all he could have to increase the positive and minimize the negative impact of his wealth on his children.
Jason Smolen and Dan Ruttenberg can assist you with your estate planning questions and concerns. Please contact SmolenPlevy at 703-790-1900.
For more insights and developments in the law, please read SmolenPlevy’s quarterly Report from Counsel.
