How Not to Do Estate Planning

Acclaimed actor Philip Seymour Hoffman tragically died in February 2014, leaving behind an estimated estate of some $35 million. But, as these articles show, in his zeal to ensure his children were not “trust fund kids,” he made some bad legal decisions that will cost his family a lot in extra (and unnecessary) taxes. First, Mr Hoffman didn’t marry his longtime partner. Since he wasn’t married to her when he died, she’s not eligible to claim the marital deduction, which would help defer estate taxes. One of the tax benefits to marriage is the ability to give your spouse unlimited gifts during your lifetime. (If you’re not married and give more than $14,000 to your partner or anyone else in one year, the gift tax applies – about $14 million in this case.) And spouses can also get portability (use the first spouse to die’s unused estate tax exemption). But you have to be married for either of those benefits.

Second, Mr Hoffman left a large estate outright to his partner, not in trust for her, or in trust for her and for his children. Inheriting in trust (rather than outright) can provide asset protection (against lawsuits, divorcing spouses, etc), greater accountability and financial stewardship (if a trustee is a spendthrift and violates their fiduciary duties, they can be removed and sued and some or all of the lost money recovered), and is a vehicle for greater intergenerational wealth transfer and philanthropy than giving someone a check or cash outright.

We don’t like to speak ill of the deceased, or second guess other attorneys or advisor’s advice to clients. And it’s possible that Mr Hoffman’s attorney, accountant, or other estate planning and financial advisors advised him to execute documents with different provisions and he refused or never got around to it. But on the surface, this unfortunately looks like a textbook case of how not to do estate planning.

Don’t make these same mistakes yourself – save your family from paying extra taxes by doing smart estate planning. Your will, living will, durable medical and financial powers of attorney should be updated every few years (at least). Have you gotten married (or divorced) or had children recently? Are your children now adults? Do you have grandchildren? Do your documents include elder law provisions? Digital estate planning provisions? Do your documents name trustworthy guardians or conservators to care for you if the need arises, or a good trustee to hold the inheritance for your minor children or grandchildren? Who will take care of your pets after your death or incapacity? My law firmJohnson Law KC LLC, is experienced counseling clients on all aspects of estate planning and asset protection, and can help you answer these questions and more with confidence and friendly expertise. If we can serve you or your family with these sensitive matters, please call (913-707-9220) or email us (steve@johnsonlawkc.com) to schedule a convenient appointment.

(c) 2014, Stephen M. Johnson, Esq.

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One thought on “How Not to Do Estate Planning

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