One common estate planning mistake that could have disastrous consequences is not updating your documents to include additional children. Continuing with the “celebrity blunders” theme, let’s examine two celebrity cases dealing with this mistake: Phillip Seymour Hoffman and Heath Ledger.
Phillip Seymour Hoffman
Hoffman died from a drug overdose in 2014, leaving behind three children with his common law wife. His estate was valued at about $35 million dollars. Thankfully, Hoffman left behind a valid will. The issue is the will was executed in 2004 when he only had one child, his son. The will was never updated to include his two young daughters.
Now, ideally, that should not matter because the will left everything to the three children’s mother, Hoffman’s common law wife. Which should have meant she would inherit and use the inheritance to take care of the couple’s three children, then pass it on after she dies.
In reality, it caused some major setbacks.
The first setback was the issue of the common law marriage. Since Hoffman and his spouse were only common law married, anything she inherited is subject to federal and estate tax laws. Common law spouses are not afforded the ability to leave an unlimited amount to their surviving spouse. Any inheritance will be taxed according the particular state’s estate tax laws and if the estate meets the federal limit, possibly federal estate taxes.
Meaning that out of the $35 million dollar estate, Hoffman’s estate would have to pay estate taxes of over $15 million dollars, according to an article written by FORBES.
Now, to avoid the estate tax issue, Hoffman’s wife could have disclaimed her share, and had the estate follow the contingency plan in Hoffman’s will. This is where the second setback comes into play.
If she disclaimed her portion of the estate, Hoffman’s will instructed the estate assets be placed in a trust for his son and it outlined at what age he could receive distributions from the trust. Since the will does not mention his daughter or reference any language like “to my son, and any other children born hereafter,” his son technically inherits it all.
Thankfully, most states address the “after born child” problem and have provisions in place to handle these situation so a child born after a will can inherit. The provisions do not mean the estate is automatically going to the split estate three ways, however. Each state’s provisions are different and usually require the appointment of a guardian ad litem for the excluded child or children to handle the estate process on their behalf.
The lesson here: (1) Know what your estate planning documents say and how they work in regard to estate taxes and how heirs inherit. (2) Ensure the documents have language in them that deal with the “what ifs” like “what if I have more children”, “what if my primary beneficiaries pre-decease me”, etc. (3) Updated your estate plan regularly. A good rule of thumb is at every big event (births, deaths, weddings, divorces, etc.) update your estate plan to reflect your wishes.
Heath Ledger passed in 2008 and his heirs were left in a similar situation as Hoffman’s. His will was outdated did not include his young daughter. Instead, the will left his approximately $20 million dollar estate to his parents and siblings.
Now, in this situation, the issue of if his daughter could petition to be included as an “after born child” would depend on where Ledger was deemed to be domiciled. A person’s estate is probated in the state they are a resident. Ledger was an Australia native with an Australian will, but died in his New York apartment. Thus, there could have been some debate as to which place had jurisdiction to probate his estate.
Thankfully, in this situation, Ledger’s family did not dispute or fight about the estate, but simply agreed to allow his daughter to inherit.
The lesson here: (1) Again, update your estate plan after big life events. (2) Do not rely on family members to be willing to equally share your estate if issues arise.
Having an estate plan is just the first step in ensuring your wishes after death are met. The second step is to be aware that as life goes on, your estate plan should be amended to reflect those changes.
Most estate planning attorneys are willing to review existing estate planning documents and discuss how the documents work in regards to your stated wishes. If you have an existing estate plan that could be out of date, talk to a licensed estate planning attorney and see if it is time to update your plan.