Is it time to review your will?

posted 4/24/2014 in Trust

Is it time to review your will?

Actor Philip Seymour Hoffman, who died of an apparent drug overdose in
February at age 46, last attended to his estate plans
on October 7, 2004. The estate tax laws have changed dramatically since then, as
did Mr. Hoffman’s personal circumstances. At that time he had one son with his partner,
Marianne O’Donnell, but they later had two daughters. Hoffman’s will left all of his property to O’Donnell. His estate has been estimated to be worth roughly
$35 million, and the federal estate tax is imposed at 40% of everything above a $5.34 million exemption. Because the couple never married, the marital deduction is not available to defer estate taxes until both spouses have died. Therefore, Ms. O’Donnell could be looking at a
$12 million federal estate tax bill. New York State also imposes an estate tax at 16% on assets above $1 million, but that tax payment is deductible when calculating the
federal tax. The combined death taxes could come to $15 million, according to some press reports. 

The will invites Ms. O’Donnell to disclaim all or part of her inheritance. To the extent that she does so, the property passes to a trust for their son, who was one year old
when the will was executed. That trust will pay its principal to the son when he reaches age 25, the balance when he is 30. Unfortunately, the trust makes no provision for after-born children, so the daughters would appear to be disinherited. Ironically, if the will had been silent on what
would happen upon a disclaimer by Ms. O’Donnell, the most likely result is that the three children would have shared any disclaimed property equally. It is possible that Hoffman made other arrangements in trust for the daughters, or his will might have been supplemented by a living trust. It’s also possible that he had life insurance, retirement accounts, or other property
that won’t pass through probate. These would not have to be made public, as a will must be. So it is entirely possible that Hoffman’s estate plan is not as inadequate as
early press reports have made it out to be.

Still, there are lessons for the rest of us here.


What should have been the trigger points?

When Hoffman executed his 2004 will, he was a successful actor, but he probably was not yet rich. The reason for making a will at that time could have been to provide
for his son, by leaving his property to the boy’s mother. In 2004 the federal estate tax exemption was $1.5 million. It’s possible that he was advised at that time of how the marital deduction could reduce the estate tax exposure at his death were he to marry his partner. It’s possible that
they dismissed this consideration because his wealth was then not close to the federal exemption.
Hoffman won the Academy Award for his performance in Capote the very next year. Generally, that recognition leads to a dramatic increase in the fees that an actor commands.


Arguably, that would have been a very good time to revisit the adequacy of the estate plan.
In subsequent years the couple had two daughters. Significant changes in family circumstances are usually occasions for will review. Was Hoffman even aware of the fact that his daughters would be disinherited by his 2004 will? Was that outcome ever explained to him?


By 2011 the federal estate tax exemption had grown to $5 million, but Hoffman’s wealth had doubtless far outstripped that figure, making his plan obsolete. In 2013
Hoffman entered a recovery program for substance abuse and separated from O’Donnell. With these developments, an estate plan that made sense even a few years earlier
might now have a cloud over it. Much as we might wish it otherwise, estate planning is not something that can be done one time and then put safely in a drawer, awaiting future implementation. Life is too full of changes, up and down, to be able to take an
estate plan for granted. Estate planning should be a dynamic and continuing process, with adjustments and perhaps wholesale revisions made as circumstances may warrant.


When was the last time you reviewed your will and
estate plans? Below is a checklist of moments that call for
just such a review. If you’ve answered “yes” to any of these
check boxes, it would be a very good idea to make an early
appointment with your estate planning advisors.

It may be a good idea to
review your will if . . .

• Your wealth level changes
significantly, up or down.

• You receive an inheritance.

• You sell a business or property.

• You move to another state.

• You get married.

• You get divorced.

• The tax laws change substantially,
as they did in 2011.

• Your philanthropic goals
change.

• There have been births in
the family.

• Any of your beneficiaries
has died.

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