Philip Seymour Hoffman died at the age of 46, with a $35 million estate. Mr. Hoffman left a will, giving much of his estate to his long-time partner and mother of his three children, Marianne O’Donnell. Because Mr. Hoffman, who apparently did not believe in marriage, and did not want his children to be ‘trust fund’ kids, left everything by will, his estate paid around $15 million in estate taxes, to the detriment of his heirs.

Mr. Hoffman’s estate planning left much to be desired, and highlights some lessons to be learned.

Well drafted trusts can be used to teach children financial management. Wanting his kids to be financially independent was a laudable goal. However, leaving everything outright to their mother is a dangerous method of reaching this goal. While Ms. O’Donnell will presumably use the $20 million for the benefit of their children, the funds are in danger from Ms. O’Donnell’s creditors. If Ms. O’Donnell were to get sued, these assets are now squarely in her estate, and therefore subject to attachment. And what if she remarries? Her new spouse may have access to those funds; and if she gets divorced, those assets may be subject to alimony. Furthermore, if Ms. O’Donnell were to become incapacitated to the point she could not manage her own affairs, someone else would necessarily have to step in to handle finances – someone not of Mr. Hoffman’s choosing. Lastly, what would happen if Ms. O’Donnell also meets an untimely end? Hopefully she has better estate planning in place, lest these assets go outright to the kids, who will have unfettered access to whatever remains of the $20 million when they turn 18. This is a result worse than having “trust fund kids.”

Had Mr. Hoffman left the money in trust, he not only could have provided creditor protection to the mother of his children and the children themselves, he could have crafted the trusts in such a way that the children would receive only what he wanted them to receive. He could have set up trusts which paid only for the children’s education and health, for instance, until such time as a person of his choosing determined that the children were of an age and maturity that they could responsibly manage the money. Or which existed indefinitely for all of his issue.

Mr. Hoffman’s legacy also underscores the advantages of marriage. Whether you believe in the institution of marriage or not, there are numerous financial advantages of getting married. The most salient one, from Mr. Hoffman’s heirs’ point of view, is that of unlimited gifting and estate transfers between spouses. Had Mr. Hoffman and Ms. O’Donnell been married, no estate tax would have been paid, and the full $35 million dollar estate would have been transferred.

The other lesson here is that of privacy; wills become public record once you pass away, which is why everyone knows how big Mr. Hoffman’s estate was, and who got it. Trusts do not need to be lodged with the relevant probate court, and therefore keep the details of your estate and your estate planning (which usually necessarily reveals family information) confidential.
Hopefully Ms. O’Donnell will not make the same mistakes, and will engage better estate planning.