What Can We Learn From Philip Seymour Hoffman?

An extremely talented actor, but not a great estate planner, Philip Seymour Hoffman, passed away in 2014 leaving behind a girlfriend and their three minor children.  In an effort to avoid “trust fund kids” and all that goes with the spoiling of the brats, he had his CPA draft a simple last will and left his $35M estate to his girlfriend with an understanding that she would provide for their children.  He did include some words in his will that he wanted the children to have access to the arts (whatever that means….)

In comes the IRS, wanting their share; and as we all know, we don’t mess with the IRS!  Since Hoffman wasn’t married and did virtually no planning, the tax bill was $12M and his estate required a probate.

So, what can we learn from one of the finest actors of his generation (in my opinion)?

We can learn the importance of being married.  As I often say, when we get married, we invite the State of Florida into our relationship and, boy, does the State have a lot to say.  There are several important factors to being legally married.

1. Homestead – We know it as a property tax deduction or creditor claim protection, but homestead also means that you may not disinherit your spouse from your primary residence.  Even if the deed only has one spouse listed, if y’all live there, the surviving spouse is entitled to a life estate. 
2. Spousal elective share – regardless of what’s in the last will (or trust) the spouse is entitled to at least 30% of the estate. 
3. Family allowance – this is the first $18,000 to the surviving spouse to allow a spouse to function during the administration of the estate.
4. Exempt property – the surviving spouse is entitled to household furniture, furnishings, and appliances in the Decedent’s usual place of abode (up to a net value of $20K) and two motor vehicles.
5. Tax benefits – Spouses enjoy unlimited estate and gift tax deduction for transfers made during life or at death to each other.  This means that any transfers of money between spouses is tax fee.

One more thing – Florida looks at marriage like a light switch.  It’s either off or on.  There is no notion of legally separated or an idea of common law marriage.  You’re either in it or not.

Now, I’m not staying the tax tail should wag the dog and that Hoffman should have married his girlfriend and mother of his children to avoid taxes.  I’m suggesting that with proper guidance, Hoffman could have established a plan that would have (1) provided for his girlfriend and minor children, (2) included a clear understanding of his desire to promote the arts in his family’s future and (3) minimized his estate tax liability, all at the same time.  A proper plan can accomplish multiple goals and avoid having a slew of trust fund kids.