|Courtesy Justin Hoch|
In the months following Philip Seymour Hoffman‘s untimely death this year, details of his estate plan began to emerge. Hoffman was beloved in his craft, and had noble intentions in his estate plan. Specifically, the acclaimed actor desired that his children not become “trust fund kids,” and reportedly rejected the advice of his attorney to create a living trust for their benefit.
While it is certainly understandable that people of great wealth would not want their children to become part of the “idle wealthy,” ending up as reality TV caricatures, it is not correct to assume that a living trust per se will spoil them. On the contrary, a living trust typically offers far greater flexibility in planning the distribution of one’s property than an ordinary will:
A living trust can be structured so that children never receive too large a share of money (or money at all) at one time. It can also be structured to give money to charity, or in almost any other conceivable fashion. Spendthrift trusts are often used by wealthy people to ensure their children do not spend their inheritance on gambling, drugs, or alcohol habits. These are common concerns in celebrity estate plans. Further, properly-drafted living trusts can cut down the risk of nasty probate litigation, which can destroy the family.
Unfortunately, Hoffman’s decision not to use a living trust may have substantial negative tax consequences. By leaving money directly to his girlfriend in a will (rather than in trust, for the benefit of his children), a large sum of money will likely be subject to double estate tax (once because of Hoffman’s death, and also when his girlfriend dies, if she gives the money to his children). His girlfriend also has far less creditor protection than she would have had, if the money had been held in trust.
It is worth nothing that living trusts have just as many benefits for those of modest means as those with Hollywood estates. These benefits include keeping one’s estate plan private after death (a benefit Mr. Hoffman’s will did not confer), faster disposition of property, more flexibility, avoidance of expensive probate court proceedings, etc. For additional information on these benefits, review my previous blog post on living trusts.
For the full story about Philip Seymour Hoffman’s estate plan, see this Forbes magazine article.