Large estates take time to settle, as all of the property needs to be distributed and the executor’s responsibilities are carried out. Actor Phillip Seymour Hoffman’s will took a slightly different tack than most, and demonstrated his values and trust in the mother of his children, without the legal stamp of marriage.
Wealth Advisor’s article, “Posthumous Philip Seymour Hoffman Buzz Reveals: Big Estates Have A Life Of Their Own,” notes that for people like Hoffman, who accumulate recurring income or intellectual property, such as movie residuals, the probate process may keep going without actively liquidating those assets and obligations or winding them down, even when an estate plan is well-done. For those that are not, lawsuits can last for decades.
Philip Seymour Hoffman left $35 million behind. He wrote a will that assigned ownership of that wealth to his partner, who’s also the mother of his children. That’s not a perfect solution because they weren't married. As a result, his millions didn't pass to her tax-free. However, it’s still much better than no will at all, like the estate of the late rock musician Prince.
Hoffman didn’t ensure that his kids would inherit every asset legally permitted by the tax laws. He knew that their mother would use the money to care for them. However, these decisions have financial consequences. Hoffman’s estate didn’t receive the unlimited marital deduction which would have reduced the risk-free Treasury interest the family money could’ve generated from $1 million to $700,000 a year, without touching the principal.
Unmarried partners are really hit hard with taxes in this situation. Hoffman’s estate paid a sizeable tax to pass on his wealth to his girlfriend. With current tax laws, she’ll pay again to pass it to the kids, reducing the ultimate inheritance by 65% in two steps. This will put a dent in possible current income.
Hoffman’s kids and their mother will be fine, even with the large tax bill. But for families who measure their wealth in hundreds of millions, lifestyle decisions and estate planning can make a big difference in how many generations get to enjoy the legacy of their ancestors. For the rest of us, estate planning is necessary to manage taxes on a lesser, but still important, scale.
Reference: Wealth Advisor (July 30, 2017) “Posthumous Philip Seymour Hoffman Buzz Reveals: Big Estates Have A Life Of Their Own”