Disastrous Estate Planning Mistakes, Part 6

In the past, our newsletter featured a series of articles entitled “Lessons Learned from Estate Planning Mistakes of Celebrities,” demonstrating why probate is such a nightmare and lessons that can be learned from the costly mistakes of celebrities. Celebrities, including James Gandolfini, Whitney Houston, Amy Winehouse, Etta James, and Michael Crichton, who made estate planning mistakes, were explored. We will now continue this series with Phillip Seymour Hoffman, who passed away earlier this month and hadn’t updated his estate plan in 10 years, leaving his companion $35 million and a hefty tax bill, and his young daughters empty-handed.

For the last 14 years of his life, Hoffman was in a relationship with costume designer Marianne (Mimi) O’Donnell, whom he had met when they were both working on the play In Arabia We’d All Be Kings in 1999. They lived in New York City and had a son, Cooper, born in 2003, and two daughters, Tallulah, born in 2006, and Willa, in 2008. Hoffman and O’Donnell separated in the fall of 2013, just a few months before his death.

In a 2006 interview, Hoffman revealed that he had entered a drug rehabilitation program in 1989 and remained sober for 23 years until relapsing with heroin and prescription medications in 2012. He subsequently checked himself into drug rehabilitation for approximately 10 days in May 2013.  On February 2, 2014, Hoffman was found dead in the bathroom of his West Village, Manhattan office apartment, and heroin and prescription drugs were found at the scene.

Hoffman’s Will was apparently drawn up in 2004 when his son, Cooper, was one-year old.   Unfortunately, Hoffman apparently never updated his Will, even after the birth of his two daughters. Reports vary tremendously with regard to whom he left his estate to.  The TMZ website claims to have obtained a copy of his will and claims that he left his entire estate, supposedly valued at roughly $35 million, to O’Donnell.  However, TMZ does not appear to have posted a copy of the Will on their website.  The only link to a copy of the Will that I can find is from the New York Post website; however, the copy of the Will that they link to is woefully incomplete, in that it skips from the first sentence of the Third Article of his Will (which is the Residuary Clause because it starts of by stating that he leaves “all the rest, residue and remainder of my estate . . .”) the to the last sentence of the Sixth Article, leaving out all of the critical provisions of the Will that state what happens to his estate.  The Second Article leaves all of his tangible personal property to O’Donnell, but tangible personal property is essentially the contents of his home(s) – things like furniture, jewelry, artwork, etc.  Tangible personal property does NOT include money or investments or real estate, which presumably makes up the bulk of his estate.  So suffice it to say that without seeing the full copy of his Will, I can’t say for certain to whom he left his estate.

There are numerous reports that the actor set up a trust for Cooper and named O’Donnell as the trustee of the funds, but not a single report states how much or what percentage of his estate was left in trust for his son, nor is it clear, without reading the entire Will, whether he made provisions for his two daughters who were born after the writing of his Will. He may or may not have according to various contradictory news reports.

So, ignoring all of the possibly incorrect information out there, and ignoring the mistake made by whoever scanned his incomplete Will, what is the huge, drastic mistake that Hoffman made? Very simply —  like thousands of people and at least dozens of celebrities, he used a Last Will and Testament to distribute his Estate instead of using a Living Trust.  Because he used a Last Will and Testament instead of a Living Trust, his financial affairs – and the financial affairs of his beneficiaries — will be known to the public and will have to go though the nightmare of the New York probate system.  New York has a very detailed probate system set forth in both the state law and the court rules. As it is in most states, probating an estate in New York can be time-consuming, taking up to 2 years or longer to complete. It can also be extremely expensive (especially in large estate), eating away anywhere from 3% to 8% of the assets of his estate – and taking that money away from the beneficiaries.  This doesn’t include estate taxes, inheritance taxes, and income taxes that may be due and payable during the course of the probate administration.

Had Hoffman used a Living Trust, then his estate wishes would be private and not in the public eye, which is full of swirling rumors and misinformation about what he did or did not do.  The cost of settling a Living Trust range anywhere from less than 1% to 3% of your assets — much less than the costs of probate, which is another huge advantage of the Living Trust. 

We advise that our clients should almost always use a Living Trust as their primary Estate Planning tool, in order to protect assets at death from having to go through the nightmare of probate.  A Will allows you to direct who receives your assets (i.e., who are your beneficiaries) and who manages your estate (i.e., who acts as your executor), but a Will does NOT protect your assets from becoming public knowledge and going through probate.  Only a properly-funded Living Trust protects your assets from going through the nightmare of probate.

In addition, in this situation, because Hoffman and O’Donnell were not married and New York state does not recognize common law unions, there will almost certainly be a huge estate tax bill on his estate. Since Hoffman is said to have amassed a $35 million estate, the federal tax bill alone will probably be around $12 million (40% of $30 million, because the first $5.34 million goes free of Estate Tax). On top of this, the New York Daily News reports that New York is one of only 14 states still imposing its own Estate Tax, and it has only a $1 million exemption.  According to an attorney writing for, the New York estate tax rate is a progressive one that starts at 5.085% and rises to 16% for the amount above $10,040,000.  So everything above $1 million will be subject to New York Estate Tax on top of Federal Estate Tax, and approximately $25 million of his estate will be subject to the highest New York Estate Tax of 16%.  That’s another $4 million in New York Estate Tax, and that’s ignoring the New York Estate tax of $9 million of his estate.

Why all the concern about Estate Taxes?  Because Hoffman could have done several things to make his Estate more tax-efficient, including marrying O’Donnell (in which case all money he left to her would have avoided Federal Estate Tax until her subsequent death). Giving monetary gifts small enough to avoid taxes during his lifetime would have been one approach, and he may have done some of that. He also could have established specialized trusts that would have sheltered some of his estate from taxes, as well.

Hoffman’s second biggest blunder was not updating his estate. You never want to go 10 years without updating your estate planning. Once you have met with an experienced Estate Planning attorney (preferably a Certified Elder Law Attorney such as myself) and created your estate planning documents, you need to make sure you update them regularly (at least every 3-5 years, but as often as yearly depending on the type of document). This is the only way to ensure that your estate plan truly reflects who you are, what you care about, and what you have.

So, when are updates needed? Have there been any changes in your family structure, financial circumstances, or health? Examples of events that could have a significant impact on your estate can include if you get married or divorced, if you have a new child or grandchild, if you or your child becomes disabled, if you retire, and others. Read our blog post about when to update your estate planning documents for more details.

Even if no changes are necessary, you should annually sign an updated Powers of Attorney. Some financial institutions won’t accept a Power of Attorney more than a year old. Similarly, the older an Advance Medical Directive is, the less likely it is that it will be honored by a doctor or hospital.

Don’t let too much time pass between reviews of your plan. The cost of a review is minimal; but as you can see from Mr. Hoffman’s situation, the cost to your family if you neglect your plan could be disastrous.  If any of the changes described above have happened to you or if you haven’t updated your estate plan in the last few years, the time is now. Call the Fairfax and Fredericksburg Elder Law Firm of Evan H. Farr at 703-691-1888 in Fairfax or 540-479-1435 in Fredericksburg to update your estate plan!  Ask about The Farr Law Firm’s Lifetime Protection Program, which ensures that your documents are properly reviewed and updated as needed, so that they will have the proper effect under the law.  In addition, if you haven’t done your estate planning and want to get started, please call us to set up an appointment for a introductory consultation.

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.