The death of actor Philip Seymour Hoffman in early 2014 has drawn the spotlight to the issue of estate planning, particularly how even the wealthy and famous make estate planning mistakes. Hoffman’s will, executed in 2004, is structured in such a way that the bulk of his estimated $35 million estate will go to his long-time partner (the couple were together for nearly 20 years but never married), with some funds set aside in a trust for his son. However, since Hoffman drafted the will a decade ago, he and partner Mimi O’Donnell have had two more children, neither of which is included in his will.

Shining a spotlight on the flaws

Legal and financial experts are quick to point out myriad estate planning mistakes brought to light by Hoffman’s sudden death. For example, the fact that Hoffman and O’Donnell never married will cost her dearly; an estimated $12 million of the estate will go directly to the federal government alone to cover taxes on the bequest. That doesn’t even consider additional taxes and fees that she will face from state tax authorities.

Many people don’t realize this, but, under the United States Tax Code, it is possible for a spouse to inherit the entirety of his or her deceased spouse’s estate with no tax debt. Had Hoffman and O’Donnell been wed, she would have been able to avoid taxes entirely through the unlimited spousal exemption.

In addition, Hoffman’s will specifically provides that a trust be set up for his son, but neither of the two daughters he and O’Donnell had since his will was executed are mentioned. One simple change – setting up a trust for his son “and any future children” (or some similar language) – would have ensured that his daughters directly inherited as well, thus saving his entire family from possible animosity and legal headaches.

Hoffman’s will also didn’t take into account his family’s desire for privacy. Had his estate plan consisted of a simply worded pour-over will that funded a separate trust (either for his son, for O’Donnell, or for their two daughters), we wouldn’t be talking about it right now. That is because wills, regardless of whether they have to go through the probate process or not, still go into the court system, thus making them part of the court record. The content of many wills is discoverable, whereas the terms of a trust will remain private unless the beneficiary chooses to share them.

Looking ahead

Of course, it is easy to stand in judgment of the mistakes made by another person’s estate plan. It is more difficult to ensure that our own desires are carried out after we pass away, the tax burden on our loved ones is minimized and they get the privacy they deserve. Thankfully, there are skilled estate planning professionals that have the specialized knowledge necessary to guide people (regardless of net worth or financial status) toward making responsible estate planning decisions.