7 Tips On Planning Your Estate, From The Mistakes of Celebrities
Cheat Sheet article by Megan Elliott
Drafting a will might seem like an activity for a wizened billionaire, but putting together an estate plan is actually a critical part of almost everyone’s financial plan, even those who aren’t super-rich. Yet estate planning is also a task that many people, especially young people, ignore, since death or incapacity seems like such a distant possibility. That’s a mistake, say experts.
“No one is invincible, and accidents can happen. It’s important to prepare for these situations, no matter how remote the possibility may be,” Kirsten Waldrop, associate professor of estate planning and taxation at the College for Financial Planning told Financial Planning. “Many people believe that, if they’re young and do not have a lot of money, they don’t need an estate plan. That is simply not true.”
Perhaps there’s no better way to get an idea of the importance of having a will and other estate planning documents in place than looking at what happens after celebrities pass away. All too often, the news of a famous person’s death is quickly followed by reports of squabbling among family members, money lost to taxes, and worse.
The rich and famous usually have more complicated financial situations than the average person. Most of us aren’t going to have to worry about who inherits our personality rights after we’re gone (an issue the family of Jimi Hendrix has argued about) or who should receive our residuals. But we can still learn lessons from how deceased celebs handled their estates. Here are seven of the most important.
1. Heath Ledger
Heath Ledger had a will when he died in 2008, which left everything to his parents and sisters. Ledger also had a young daughter, but he had not updated his will to include her. His family ultimately decided that she would receive the entire inheritance, but if they had not, she may have been left with nothing from her father’s estate.
Lesson: Updating your estate plan after major life events like the birth of a child is essential.
2. Paul Walker
Paul Walker died far too soon, leaving behind a teenage daughter, his parents, and many stunned fans. But the 40-year-old actor had taken steps to prepare for the worst. He had a will and had set up a trust for his child, who inherited all of his $25 million in assets. Though Walker was relatively young, he had smartly taken steps to protect those closest to him.
Lesson: “[L]ife does not always work out the way we expect,” wrote Stephen C. Hartnett, the associate director of education for the American Academy of Estate Planning Attorneys. “Walker was wise in that he had thought ahead and had done an estate plan.”
3. Warren Burger
You’d think a Supreme Court Justice would know better than to take a do-it-yourself approach to estate planning, but apparently not. Chief Justice Warren Burger wrote his own will, but the brief document contained misspellings and oversights that may have cost his heirs hundreds of thousands of dollars.
Lesson: Do-it-yourself estate planning can backfire. Burger’s self-written will was valid, but other people may not be so lucky. Handwritten or videotaped wills or those that aren’t properly witnessed may not be recognized, and if you make a mistake, the entire will may be useless.
“Many people think an invalid will still influence(s) where your assets go, but it doesn’t,” estate planning attorney Kristi Mathisen told Bankrate. “If you have an invalid will because of a failure in the execution of the document, your state’s law of intestate succession steps in.” Protect your heirs and hire a lawyer.
4. Lou Reed
Former Velvet Underground frontman Lou Reed died in 2013, leaving his $30 million fortune to his wife and his sister. He had no children and a small family, which meant that he was able to keep his estate plan simple and straightforward. But because he had a will and not a trust, the details of estate became public, including how much money he had and who received it, when the will was filed in probate court.
Lesson: If you want to keep family business and finances private, don’t rely on a will alone.
5. Philip Seymour Hoffman
Oscar-winner Philip Seymour Hoffman didn’t want his three children to be “trust-fund kids.” To avoid that possibility – and against the advice of his lawyers — he left his entire estate to his long-time girlfriend Mimi O’Donnell, with the idea that she would provide financially for their kids. But because O’Donnell and Hoffman weren’t married, she was hit with an estate tax on the inheritance. And while Hoffman obviously trusted his partner to do right by their children, there’s no guarantee that she’ll make the same decisions he would have, as estate planning attorney Melissa Montgomery-Fitzsimmons explained in an article for MarketWatch.
Lesson: Estate tax is only an issue for people with more than $5.43 million in assets, but anyone with kids should think about how they would want them provided for. Setting up trusts with restrictions (such as that the funds be used only for education) can be a way to provide for kids without spoiling them.
6. Tom Clancy
Best-selling author Tom Clancy left behind $86 million when he died in 2013 at age 66, as well as a complex family situation. Some of his wealth went to his current wife and their minor daughter, while the rest went to four adult kids from a previous marriage. But unclear planning documents lead to a dispute over who should have to pay taxes on the estate.
Lesson: Clancy’s estate was uncommonly large, but his family situation wasn’t unusual. When relationships between heirs are complicated, crystal-clear instructions can help avoid conflict. “It’s critically important … that planning documents, regardless of if the family is blended, be drafted with as much clarity and attention to detail as possible in anticipation of such squabbling,” says WealthManagement.com.
7. James Gandolfini
After he died in 2013, some who saw James Gandolfini’s will wondered whether the Sopranos star had ignored estate taxes and disinherited his eldest son. Neither was true, his lawyer told the New York Times. Yet other experts pointed out that sloppy and incomplete planning might lead to confusion or problems for his heirs, especially when it came to his home in Italy, which he left to his children, but without any specific provisions for its upkeep.
Lesson: A half-finished approach to estate planning could cause problems for your heirs and may mean that your wishes aren’t carried out exactly as you intend. Also, if you have property you want to keep in the family (like a beloved cabin), making provisions for maintenance can reduce conflict and make life easier for your survivors
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