Article originally published by ThinkAdvisor.
Overlooking estate planning basics can leave heirs facing years of court battles over taxes and who gets what. Estate planning can be tricky, and for celebrities with mega assets the stakes for heirs are enormous. It seems that mistakes are often made in writing wills and when they are, the tabloids have a field day as after the death of actor Philip Seymour Hoffman.
“The biggest problem is they are living so fast and are so busy,” John J. Scroggin, who works on estate planning and other legal issues with many celebrities at Scroggin & Co., a Roswell, Ga., law firm told ThinkAdvisor.
Divorces, the birth of children after a will is drawn and other events can all cause problems if an expert in estate planning is not employed to help, Scroggin said. Not all the tabloid stories of poor estate planning are true, of course. Scroggin noted that reports of actor James Gandolfini’s estate planning were worse than the truth behind it.
Scroggin said a common error by celebrities is that “they assume divorce terminates all rights to retirement accounts and even life insurance.” While laws differ depending on the state, Scroggin says beneficiaries should be changed, lest someone left behind end up with a piece of the financial pie.
In Hoffman’s case, as in others, children born after a will is drawn up can be left out, a situation Scroggin says should never happen. “A well-crafted will typically says after-born children will be treated the same way” as those alive at the time it is written, he says.
One might wonder how celebrities with all that money and access to financial and legal experts can end up leaving their heirs to deal with a huge headache.
“What happens with celebrities is they have agent-lawyers,” Scroggin said. “They might not be competent in estate planning and they might be afraid to refer clients to an expert because,” they fear losing the business.
For those who like a glimpse into the messy lives of the rich and famous, we’ve compiled our list of 10 Big Estate Planning Mistakes of the Rich & Famous:
When the diminutive one-time child star of “Diff’rent Strokes” died in 2010 at age 42, he didn’t leave much. He’d had had his troubles over the years after the sitcom left the air and the woes continued after he died. A codicil to his will added in 2009 left everything to Shannon Price, who claimed to be his common-law wife under Utah law. That left his longtime friend and the former chief of his corporation, Anna Gray, in the lurch. After a judge in 2012 ruled that there never was a Price-Coleman wedding and the codicil naming her his heir was invalid, Gray was restored as heir to the modest estate that included a home with a mortgage and TV royalties.
Estate: Not available (but strange)
The size of the estate of the ballplayer often acknowledged as the greatest hitter of all time was not the main issue when he died in 2002. Williams’ heirs instead fought over what to do with the slugger’s body. One will specified it should be cremated, another that he it should be preserved cryogenically until the day came that it could be reanimated. Amid the court battle were lurid tales of Williams’ head being kept separate from his body.
Estate: $1 million
When singer and record producer turned congressman Sonny Bono died in a skiing accident in 1998, he failed to have a written will. That led to the expected battle. Was anyone truly surprised that one-time wife and singing partner Cher sued for a share of his estate seeking unpaid alimony? And there was the obligatory love child turning up with his hand out. A DNA test showed the love child was a fraud. Still, the lack of a will meant Bono’s surviving wife, Mary, had to fight in court to be named executor. Years of legal red tape followed.
Estate: $20 million (estimated)
When the actor died in 2003, it was revealed that the “Dark Knight” star had failed to redo the will he had signed before his daughter was born. That left his entire estate to his parents and his sisters. Despite the mistake, everything apparently turned out as Ledger would have wanted. Five years later, the family announced all the money would go to Matilda, Ledger’s daughter with actress Michelle Williams.
Estate: $30 million
The iconic artist died intestate in 1971 leaving an estate that today would be valued at $173 million. Despite the fabulous fortune, Picasso neglected to execute a will. To settle the enormous tax bill owed France, the estate handed over the paintings by Picasso and others that formed the bulk of the collection of the Musee Picasso in Paris. Of course, that only accounted for a small portion of the 45,000 artworks found in three villas owned by Picasso. Wrangling over the estate lasted years and included lawsuits that were filed and dropped. In the end, the artist’s illegitimate son, Claude, helped lead five other siblings, including sister Paloma, to a settlement.
Estate: $35 million (estimated)
Philip Seymour Hoffman’s mistake was not updating his will. Written in 2004, the actor never updated it, despite the fact that his two daughters were born after that time. The will left all of his estate to his partner, Mimi O’Donnell, and gave her the option of turning down the inheritance and placing it in a trust. The catch is that because the will only mentioned Hoffman’s son, his daughters might not share in the estate. The tangled New York laws governing estates will likely lead to a long battle to get the two girls their due. Maybe if the lawyer who had drawn up the will had been an expert in something other than real estate the results might have been different.
Estate: At least $40 million (including post-mortem earnings)
The author of “The Girl With the Dragon Tattoo” and other international best sellers didn’t live to see his works become popular. Because he died in 2004 before hitting the big time, his girlfriend of three decades, Eva Gabrielsson, and his family were left to fight over the proceeds of his book sales. The family says they made sure Gabrielsson inherited the author’s apartment and offered her $2.6 million even though Swedish law does not recognize common law marriage. Gabrielsson was not appeased and wrote a scathing autobiography in 2011, seven years after Larsson’s death.
Estate: $45 million
Joe Robbie amassed a fortune during his lifetime and became a celebrity as owner of the Miami Dolphins. The team was fabulously successful, even completing the only undefeated season in NFL history in 1972-73. Still, when he died in 1990, family infighting among his children (he had 11) ensued. And then there was the matter of tax bill of $45 million from the IRS. The only way to satisfy the IRS was to sell the team. With that went a major piece of Robbie’s legacy. His name was even stripped off the stadium he helped build. Better estate planning could have headed off all the trouble.
Estate: $100 million
Sometimes having a will isn’t enough. When the “Godfather of Soul” died in 2006, his will specified that nearly all of his estate be left to the James Brown “I Feel Good Trust,” which was designed to educate needy children in Georgia and South Carolina. His personal and household effects were to go to his six kids and an education trust was set up to pay the education of his grandchildren. Sounds so orderly, doesn’t it? What ensued was a series of lawsuits followed by a settlement. The settlement was overturned by the South Carolina Supreme Court, which ruled that the state’s attorney general had no right to step in to mediate. His rewriting of the state plan to award half the money to Brown’s children was scrapped. The court last year sent the case back to Aiken County.
Estate: $7 million to $1.13 billion
The Michael Jackson saga never ends. From his wild life chronicled in the tabloids and mainstream press until his bizarre death and the conviction of his doctor for administering a fatal dose of a drug to help him sleep, the details are difficult to believe. And then there’s the matter of his estate. When the “King of Pop” died in 2009, his executors valued his estate at $7 million. Now the IRS says the intellectual and song copyrights make it worth more than a billion dollars. The agency says the estate owes $505 million in back taxes and $197 million in fines and penalties. If the IRS wins, the government could end up owning an interest in songs like the Beatles’ “Yesterday.” Imagine that.