PROTECTING HEIRS REQUIRES PRUDENT PLANNING

petehoovernewheadshotMalvern, PA – Recently, a profusion of Internet and print articles proclaimed problems with the will of Philip Seymour Hoffman, who died in February. The late actor’s estimated net worth at the time of his death was $35 million. A tax exemption on the first $5.34 million is provided by federal law. However, a tax of up to 40 percent can be levied against the excess.

One of many other glitches involves Hoffman’s three children. When the will was signed in 2004, he had one son. Thus, his daughters are not mentioned in the will, which leaves everything to his companion Marianne O’Donnell, the children’s mother. A Trust is provided for their son, but nothing is allocated to the girls. The family resided in New York and the state allows only a $1 million exemption. Thus, New York can tax O’Donnell up to 16 percent on assets left to non-spouses. A total of more than $15.1 million in combined state taxes was reported in an article in Forbes. Without a marital deduction, O’Donnell’s assets could be taxed again upon her death.

Last year, news sources stated that $30 million of actor James Gandolfini’s $70 million estate would be eaten up in state and federal taxes. Subsequent reports clarifying the earlier claim indicated this was unlikely to happen.

Peter K. Hoover, CFP, is intrigued with all these reports and sees essential value in alerting people to potential disaster if proper measures aren’t in place concerning estates and beneficiaries. “If ownership, beneficiaries and implementation of assets are not worded correctly, the Trust outcome will not work as intended by the testator. One way Hoffman (or anyone) could have prevented financial crises for his heirs was by adding one or two sentences to the will to provide for future children,” he notes.

“I believe that Gandolfini had an irrevocable Trust, which is tax free,” continues Hoover. “However, there are many misconceptions that can cause estate problems for heirs. To simplify, think of an estate as moving parts that must work together.

“For example, if a married couple prepare their wills when they are relatively young and name children beneficiaries of a sizable estate, it would seem there would be no issues. But say both parents die unexpectedly a few years later and the kids are under the age of majority. A court guardian may have to be appointed and fights over the estate could ensue, disrupting the family and perhaps denying one or more children the inheritance wished for them. To prevent this, children’s estate assets can be directed toward a Trust until they reach specified ages; a Trustee could be named to administer this Trust.”

Hoover suggests another possible inheritance problem prevalent in divorce situations. “If someone re-marries and immediately revises his will naming his new wife beneficiary, one would assume she would receive the estate. Not so, if all insurance and retirement beneficiaries are not updated, as well. Because a beneficiary supersedes the will, the former spouse could get nearly everything. This is because insurance policies, 401Ks and IRAs were not changed when the will was drawn up. These are only two of many situations that could be prevented with proper planning.”

Hoover notes that other stumbling blocks to a smooth estate execution include tax law changes, improper signatory or power of attorney, even lifestyle modifications. “An individual’s estate should be carefully structured and then reviewed on a regular basis. In short, planning today provides peace of mind for heirs tomorrow.”

HFA, which is headquartered on Moores Road in Malvern, was launched in 2005 by Hoover, who has been an independent financial advisor for more than 30 years. Since its inception, HFA has more than tripled in size. Employees include client relationship managers, financial planners, insurance and tax specialists, investment analyst and an information services manager. HFA selected as 2012 Small Business of the Year by Chester County Chamber of Business & Industry. For more information, visit its website at http://www.petehoover.com or call 610.651.2777.

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