Philip Seymour Hoffman's 3 Biggest Estate Planning Mistakes

Here's how you can avoid making those same costly errors

Obit Hoffman
Invision/Associated Press/Victoria Will
The tragic death of actor Philip Seymour Hoffman has shaken the entertainment world; the state of his $35 million estate should shake the world of personal finance.

The 46-year-old actor executed his will in late 2004, with a trust providing for his oldest child and leaving the rest of his estimated $35 million estate to Mimi O'Donnell, his longtime partner and the mother of their children. Yet because of decisions that Hoffman and his family made, estate taxes at the federal and state level could easily amount to more than 40 percent of Hoffman's overall net worth.

Most people aren't nearly as wealthy as Hoffman was. But there are still important lessons to learn from the issues Hoffman's family will face -- ones that can help you avoid costly mistakes in your own estate planning.

Marrying Your Honey Can Save Them a Fortune

The most costly issue with large estates involves marital status. Because Hoffman and O'Donnell weren't married, O'Donnell's bequest won't qualify for the unlimited marital deduction under the estate-tax laws. Although Hoffman will get the benefit of a $5.34 million estate-tax exemption, the remainder of roughly $30 million will be subject to tax rates of 40 percent.

If Hoffman and O'Donnell had been married, about $12 million more would have ended up in the hands of O'Donnell and their family rather than going to the IRS. Similar issues will affect the amount that the Hoffman estate will owe for New York estate taxes.

Even if you're not wealthy, estate-planning laws make things much easier for married couples than for unmarried ones. Most state laws provide for a spouse to receive all or part of your estate after you die even if you never execute a valid will. But if you die without a will and aren't married, then your estate will generally go to your children or parents, potentially leaving a longtime companion without the financial support you might have intended.

Obviously, a decision to marry involves more than just tax and estate-planning considerations, but it's worth taking them into account in making decisions about your family's financial future.

Keep Your Plan Up to Date

Another thing Hoffman failed to do was update his estate-planning documents. He and O'Donnell had a son at the time he signed his will, but they later had two daughters. Because he didn't update his will to specifically mention the girls, it's unclear whether all three will be treated equally without extra effort from O'Donnell to even the playing field.

Various estate-planning laws can help protect family members who weren't included in older wills, including children who weren't yet born or spouses who weren't married until after an old will was created. Still, whenever a major life event occurs, such as a marriage, birth, divorce or death, it's much smarter to make deliberate adjustments to your estate planning to ensure your documents incorporate your latest wishes. Otherwise, the consequences can be extremely unpredictable.

Don't Make Your Estate a Circus

Finally, Hoffman put his family through an unnecessary public ordeal by not using trusts more extensively. In most cases involving people with extensive estates, the use of revocable trusts avoids having details of an estate plan released to the general public.

Most people draft a simple will directing that all assets not already within the trust be put there after death, so that if someone forgets to transfer all of their property into the trust, it won't go uncovered. Provisions of the trust itself, however, can remain private under those circumstances, protecting family members from having to endure awkward questions from the general public about the implications of specific will provisions.

Be Smart With Whatever Money You Have

Few people have assets as extensive as Hoffman had, and it's easy to imagine that estate planning is something those of more modest means don't need to worry about. But Hoffman's choices show that it's easy to create estate-planning problems without intending do.

The best move is to anticipate potential problems and address them at the easiest possible time: while you're still alive to do something about them.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.

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Steven J. Fromm

These are all such great points. Our readers and clients need to be educated on the failure to update wills and having a qualified estates attorney draft their will. For additional insight and other issues explored in the Phillip Seymour Hoffman tragedy readers may want to look at Phillip Seymour Hoffman: Lessons For Us and Especially Women On The Estate Plan Left Behind at
Hope this additional spin is of value to your readers.

March 09 2014 at 10:20 AM Report abuse rate up rate down Reply

Hoffman, Hoffman, Hoffman I,ve had enough it's sick that the americian public has to see his face everyday for the past two weeks. He was a drugie and no hereo. Stop already wit Hoffman,

February 26 2014 at 1:04 AM Report abuse +4 rate up rate down Reply

Literally hundreds of thousands of people have been killed by what they put in their will.
If you want your relatives to have any of it, give it to them now while you are alive.
There is zero taxes on it that way.
My relatives hounded me for years to write a will. So I did, leaving it all to me. How ? My entire estate is to be liquidated and used for my cryogenic suspension.

February 25 2014 at 8:44 PM Report abuse rate up rate down Reply

Easy way to make money that is working for me, do a search for " Bionic Traders " it’s swing trading the oil market and it really works.

February 25 2014 at 7:42 PM Report abuse rate up rate down Reply

It sounds like because he didn't have better planning...he must've been quit of a loner in life. I think ANYONE that takes their life and career seriously will have friends, family and co-workers that will make sure this is taken care of. Sounds like he didn't have much of a support group which to me is weird, since after all he did have 35 million dollars. If you won the lottery you'd have people crawling all over just to "give you" financial advice....this guy apparently didn't have much help.

February 25 2014 at 6:40 PM Report abuse +1 rate up rate down Reply

She will get enough money. Our governemnt needs the cash pronto so they can rebuild America ...LOL

February 25 2014 at 5:58 PM Report abuse rate up rate down Reply
Pete or Lindsey

Yes. I agree. And that was going to be my comment exactly: the whole needle in the arm thing was THE estate planning mistake. And that from someone who used to be an estate planning attorney. The single biggest mistake most people make is dying at the wrong time. That said, one of the best loopholes in the tax code still is dying at the right time - Date of Death Basis is just about the best thing that can happen for heirs.

February 25 2014 at 5:18 PM Report abuse rate up rate down Reply

Dieing with a needle stuck in your arm would seem like a big planning mistake to me.

February 25 2014 at 4:00 PM Report abuse +2 rate up rate down Reply

I'm pretty sure his biggest mistake was being a narcissistic junkie...

February 25 2014 at 2:46 PM Report abuse +3 rate up rate down Reply

his biggest mistake was choosing drugs over his kids.

February 25 2014 at 2:38 PM Report abuse +2 rate up rate down Reply