Review and Update Your Will

One would think that accomplished celebrities have astute financial planners to ensure wealth growth and rock-solid inheritances for spouses and children. It amazed me to learn that Philip Seymour Hoffman, the award-winning actor, who died in February and James Gandolfini, late star of the acclaimed television series The Sopranos left problem-ridden estates for their beneficiaries to muddle through.

One of many nuggets of wisdom I have learned from Pete Hoover over the years as HFA’s public relations consultant is to periodically review all estate papers in order to protect assets for future generations. In the case of Hoffman, his estimated net worth at the time of his death was $35 million. A tax exemption on the first $5.34 million is provided by federal law. However, a tax of up to 40 percent can be levied against the excess.

One of many other glitches involves the actor’s three children. When the will was signed in 2004, he had one son. Thus, his daughters are not mentioned in the will, which leaves everything to his companion Marianne O’Donnell, the children’s mother. A Trust is provided for their son, but nothing is allocated to the girls.  The family resided in New York and the state allows only a $1 million exemption. Thus, New York can tax O’Donnell up to 16 percent on assets left to non-spouses. A total of more than $15.1 million in combined state taxes was reported in an article in Forbes. Without a marital deduction, O’Donnell’s assets could be taxed again upon her death.

Last year, news sources stated that $30 million of actor James Gandolfini’s $70 million estate would be eaten up in state and federal taxes. Subsequent reports clarifying the earlier claim indicated this was unlikely to happen.

In my amazement that such travesties could occur, I asked Pete about such situations. He stressed the value of alerting people to potential disaster if proper measures aren’t in place concerning estates and beneficiaries. He suggested that an individual can prevent financial crises for heirs by adding one or two sentences to the will to provide for future children.

Pete told me he thought Gandolfini had an irrevocable trust, which is tax free, but pointed out that there are many misconceptions that can cause estate problems for heirs. To simplify, he suggested thinking of an estate as moving parts that must work together. If ownership and implementation of assets are not positioned and worded properly, the trust’s outcome will not work as intended by the testator.

For example, if a married couple prepare their wills when they are relatively young and name children beneficiaries of a sizable estate, it would seem there would be no issues. But say they both unexpectedly die a few years later when the kids are all under the age of majority. A court guardian may have to be appointed and fights over the estate could ensue, disrupting the family and perhaps denying one or more children the inheritance their parents wished for them. To prevent this, children’s estate assets can be directed toward a Trust until they reach specified ages. A Trustee could be named to administer this Trust.

Pete also noted that another possible inheritance problem is prevalent within divorce. If someone re-marries and immediately revises his will naming his new wife beneficiary, one would assume she would receive the entire estate. Not so, if all insurance and retirement beneficiaries are not updated, as well. Because a beneficiary supersedes the will, the former spouse could get nearly everything. This is because insurance policies, 401Ks and IRAs were not changed to match the new will. These are only two of many situations that could be prevented with proper planning and periodic perusal of all financial documents.

Other stumbling blocks to a smooth estate execution include tax law changes, improper signatory or power of attorney, even lifestyle modifications. Bottom line is an estate should be carefully structured and then reviewed on a regular basis.