When I heard Philip Seymour Hoffman was making waves again in the estate planning community, the surprise was short-lived.
Granted, the star died in 2014 and while there were hints that his exit was complicated, he left a capable girlfriend behind to take care of his kids and guard his professional legacy.
We all got on with everyday developments in our own lives. But for his nearest and dearest, that kind of easy closure took time. Arguably it takes a lifetime.
Even on the purely financial level, it can take years for a big estate to settle, distributing all the property and resolving all the executors' duties.
For people like Hoffman who accumulate recurring income or intellectual property -- the movie residuals -- the process may never really end without active effort to liquidate those trailing assets and obligations or wind them down.
And that's when the estate plan is relatively well structured. When there are question marks or outright dissent, the lawsuits can simmer for decades.
That's why it's good news to hear that Hoffman's estate has reached the point where we can really weigh in on what worked and how other people's clients could do better.
It turns out that he left a substantial $35 million behind and wrote a will assigning ownership of that wealth to his longtime romantic partner, the mother of his children. While that solution wasn't perfect -- because they weren't married, Hoffman's money didn't pass on tax-free, for example -- the outcome was still a lot better than it could've been.
And that's the outcome that fit the way he lived. He wasn't into married life. There was no putting a price tag on that, no matter how high the millions ramped up.
Likewise, he wasn't into making sure the couple's three kids would inherit every possible cent that the tax code allows. He knew their mother would use the money to look out for them. That's it. No dynastic ambition, zero effort to manipulate their lives from beyond the grave.
The decisions carry costs, it's true. Forgoing the unlimited marital deduction reduces the risk-free Treasury interest the family money could have generated from a cozy $1 million to "only" $700,000 a year without touching the principal.
If the family can manage to live on that scale, the kids may ultimately inherit $4 million apiece at current tax rates when their mother dies, assuming of course that there's still an estate tax at that hopefully far-off date.
That's where the unmarried partners really take a hit. His estate paid to pass on the wealth to her. Under today's rules, she pays again to pass it to the kids, reducing the ultimate inheritance by 65% in two steps and stomaching a drag on current income meanwhile.
At this level of wealth, it arguably doesn't matter. The kids should be comfortable either way.
But for mere mega-millionaires, it makes a big difference in terms of the lifestyle the survivors can support. In these cases, it's probably worth at least exploring a deathbed marriage if there's time.
Hoffman didn't give the family time and probably felt strongly enough about the institution to pay the extra tax. For others, the dollar signs may provoke second thoughts.
The point is that every family is different and obeys its own organic calculus of cash versus non-economic priorities. While legal channels exist to let the deceased relative weigh in on that calculus, not everyone chooses to wield the dead hand.
Hoffman apparently wanted the kids to travel. I get the feeling they would've done that either way. They have their whole lives ahead of them. I hope they do great things.
Maybe that's the key to truly dynastic planning. People come and go, playing roles and nudging the structure in the directions their personalities and personal goals dictate. The money follows its own path, and if they intersect, the advisors earn their fees.
