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Actor's estate planning mistakes may overtax loved ones

California community property laws influence how estate assets are divided. A Los Angeles spouse cannot be disinherited involuntarily, and children or other relatives are not automatic heirs. According to California Probate Code Section 6400-6414, a will cannot prevent a surviving spouse from claiming half an estate, but the protection does not cover an unmarried partner.

When actor Philip Seymour Hoffman died in early February, he left behind assets reported to be worth $35 million. Hoffman was not married to Marianne O'Donnell, the mother of his three children, although he named her as the primary beneficiary. Hoffman set up a trust for his first child, a son who will receive an inheritance at age 30.

Legal observers say Hoffman drew up his will 10 years before his death, before the births of his two younger children. Critics said Hoffman erred by using a real estate attorney to draw up estate planning documents and never updated the will. Beneficiaries may suffer financially as a result.

Hoffman's companion cannot take advantage of spousal estate tax benefits. There are no special considerations for common law marriages in the state where the couple lived. Estimated combined state and federal estate taxes could wipe out from $11.9 million to $15 million or more of the Hoffman estate.

The actor's assets could have been funneled into individual trusts and out of his taxable estate as a way to preserve property. The two younger children may inherit some of their father's assets, despite their absence from the will. Some state laws would assume, since Hoffman provided for his son, the actor eventually intended to leave assets for his other children.

Observers found fault with the son's lump sum inheritance. Hoffman could have structured the trust to give his son eventual trustee control, without losing the tax and other protections provided for trust assets. Estate planning documents can customize the distribution of assets but only when you take advantage of them.

Source: CNBC, "Why Philip Seymour Hoffman's will is 'a mess'" Kelley Holland, Feb. 21, 2014

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