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Where there's a will, a much easier way

Mar 2, 2014 @ 12:01 am

Once again, a celebrity has died and his will has been found wanting. That's a shame for his family, but it offers lessons for advisers and their clients.

In this most recent case, the celebrity was Oscar-winning actor Philip Seymour Hoffman. He left an estate reportedly worth $35 million to his partner, Marianne O'Donnell, the mother of his three children, but because he did not plan properly, she is likely to face a multimillion-dollar tax bill, according to estate-planning experts who reviewed the will.

One of the mistakes Mr. Hoffman made was not updating his will after the birth of his last two children. The will reportedly was drawn up in 2004, more than nine years before his death, when he had only one child. The will provides for that child, a son, but because it was never updated, it doesn't account for his two daughters.

Another shortcoming is the fact that he left the estate directly to his partner instead of setting up a trust. That means the estate will get taxed now and then again at her death. A trust also would have protected the estate from creditors and passed the assets on to descendents after the survivor's death.

The biggest lesson for advisers is to make sure clients' estate plans and wills are reviewed annually and updated to account for changes that have occurred in their clients' lives. That includes births, deaths, divorces, inheritances, etc.

It is probably safe to say that given the trajectory of Mr. Hoffman's career, he was a much wealthier man at the time of his death than when he signed his will in 2004. If he did have a modest estate at the time, he may not have felt the need to consult a tax attorney, who undoubtedly would have given him better advice and stressed the need for reviewing his will on a regular basis.

It is a lesson all advisers should take to heart and communicate to their clients.

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