If you go to the movies very often, you might have heard of an actor named Philip Seymour Hoffman. He was quite a talented character actor, he even won an Oscar for portraying Truman Capote, and he was nominated for a number of other Oscars and Tonys as well.
Don’t worry, I’m not about to turn this into a movie review column. My interest in the talented Mr. Hoffman is not that he was a good actor, but that he was a bad estate planner.
When Philip Seymour Hoffman died in 2014, he left behind a sizable estate. Unfortunately, while he had done some estate planning, he ignored the advice of his attorney and his accountant to get a living trust (he only had a will in place), and the way he structured his plan will cost his heirs millions of dollars in estate taxes.
What I really find interesting about Mr. Hoffman’s estate, however, is that it shows some of the imperfections in the statutes which are designed to catch particular problems.
Mr. Hoffman never married, but he had a long-term relationship with a girlfriend. His will left everything to her if she survived him. So far, so good. Except that the two of them had broken up a few months before his death. Would he still have wanted his ex-girlfriend to receive his entire $36 million estate? It doesn’t matter, she survived him so she will be getting it. Every single penny. Well, except for the 40 percent estate tax bite.
Alaska, like many other states, has a law which disinherits a divorced spouse. If you leave behind a will (or a trust, or a beneficiary designation) which names your ex as an heir, and if the will was made out before the divorce, the law says that the ex-spouse does not get anything. But what if the “spouse” was actually just a “significant other”? Then the law does not apply. After all, when a boyfriend and girlfriend break up there is not the kind of clear delineation of the end of the relationship that you get with a decree of divorce. You can split the sheets, leave a forwarding address with the post office, and change your Facebook status to single, but unless the will is changed, you’re still an heir.
But let’s imagine, for a moment, that the girlfriend did not survive Mr. Hoffman. The will says that their young son is the beneficiary. But after the will was signed, Mr. Hoffman and his girlfriend also had two daughters together. Would they have been disinherited? Probably not. While this estate would not have been probated in Alaska, most states, including Alaska, have “after-born child” statutes for just this situation. If a child is born after the will was made out, that child is entitled to a share of the estate (assuming it is not going to the other parent). But the complicated formula may or may not do what the deceased wanted, depending on the family situation. It is a mathematical formula which doesn’t take all of the circumstances into account, and the judge has very little discretion in how to apply the formula.
So here are the lessons we can learn from Philip Seymour Hoffman: first, update your estate plan any time there is a major life change. That includes the birth of the child, marriage, entering into a serious relationship, or breaking up with someone. Don’t rely on these imperfect statutes to “clean up” what you left behind. And second, while you get to decide what to do with your assets, listen to what your accountant or attorney is telling you, and don’t overrule them unless you’re sure you know why they think you should do things differently.
Kenneth Kirk is an estate planning attorney in Anchorage. This article should not be taken as legal advice in a specific situation; for legal advice, you should consult an attorney directly.
