No one wants to leave behind a mess for their loved ones to deal with. The goal of estate planning is to ensure that your estate is distributed according to your wishes and in the easiest possible way for your heirs. Unfortunately, should you pass away unexpectedly and without updating your will and other relevant documents, it can leave your family scrambling to fill in the gaps.
The untimely death of actor Philip Seymour Hoffman, which we discussed on Wednesday, is a good example of what can happen if your estate planning documents are not up-to-date and you haven’t considered your options fully. As many Rochester residents know, Hoffman passed away suddenly a few weeks ago. He had three children and a partner of many years, who is the mother of all three children. Hoffman’s will, however, only mentions his oldest child and his partner.
Hoffman, it appears, did not update his will at the births of his two younger children. As we discussed in our last post, complications can arise when a parent doesn’t update a will after having additional children. What happens, however, when you never marry your partner?
In Hoffman’s case, it means leaving her with a huge tax bill. Married couples have the benefit of passing unlimited assets to one another. Because Hoffman and his partner weren’t married, however, she will be subjected to federal estate-tax exemption laws like anyone else.
Today, the exemption level is $5.34 million, meaning that a person can bequeath that much in assets tax-free. Anything beyond that is taxed at a rate of 40 percent. Hoffman’s estate is worth $35 million, which means the IRS may very well be collecting a large portion of it. According to Daily Finance, had the couple gotten married, it would have kept an additional $12 million out of the hands of the IRS.
While estate taxes, of course, should not be the only reason you get married, it is certainly something to consider. By marrying a partner, you ensure that he or she will receive as much of your estate as possible while keeping much of it out of the hands of the IRS.
Source: Daily Finance, “Philip Seymour Hoffman’s 3 Biggest Estate Planning Mistakes,” Dan Caplinger, Feb. 25, 2014