Boston, MA (PRWEB) September 03, 2014
“Hoffman left behind a will after his unfortunate death that sparked a massive debate by many ultra-wealthy, including Sting, Gates, and Buffett regarding their passion for avoiding creating trust-fund kids.” Says Rocco Beatrice Hoffman passed away from a massive heroin overdose in early February; he left a will that specifically called for his son to be raised in an American metropolis, and he also voiced his disapproval of the trust-fund baby image. Hoffman limited his estate planning to a will that was introduced in surrogate court weeks after his death (4). Hoffman is hardly alone in this overly cautious approach to the trust fund baby stigma.
In early 2012, American voters were given a close look at the lives of the rich and famous via a man who could have become President of the United States. The wealth of former Massachusetts Governor Mitt Romney became a point of interest among the public, particularly when it came to estate planning. What voters in the U.S. learned was that Romney's five sons: Ben, Craig, Josh, Matt, and Tagg, had been certainly taken care of by their parents to the tune of $100 million (1).
As a successful investment banker, Romney certainly knew how to take advantage of certain financial vehicles that offered tax-free gifts that he could use to establish a trust fund for his children. As with many other things in politics, Romney's thoughtful estate planning drew praise from some circles and criticism from others (1). On one hand, some families approved of Mitt and Ann Romney's desire to financially establish their sons at a time when the economic future of the world faces uncertainty; on the other hand, famous millionaires such as singer Sting, American investor Warren Buffett and Microsoft co-founder Bill Gates have expressed their opinions on the “trust-fund kid” phenomenon (2).
Gordon Matthew Thomas Sumner, more famously known as Sting, has explained that his $300 million net worth will not become a burden to his children, who are already accustomed to working and rarely ask their father for anything (3). The former member of the legendary British rock band The Police is not alone in this sentiment. In a way, Bill and Melinda Gates have already planned for their three children to get $10 million of the couple's $76 billion (2). The Gates' rationale in this regard is succinctly explained by billionaire investors Warren Buffett, who wants to leave his children enough money so that they can feel the joy of financial freedom, but not so much money so that they feel like they don't have work.
“The trust-fund baby image tends to be very negative among our clients,” explains Rocco Beatrice, Managing Director of Estate Street Partners, LLC. “We are a financial and estate planning firm, and we get some clients who feel that leaving everything they own to their children would just end up spoiling them and making them lazy. It's a valid concern, not to mention that a lump sum distribution of assets could be quickly spent.” Estate Street Partners, LLC, operates UltraTrust.com, a website where clients can learn about the advantages of irrevocable trusts as estate planning tools.
Commenting on Hoffman’s probate proceedings, Mr. Beatrice comments: “Here we have an actor whose estate is estimated at $35 million and bound to increase as more films that he worked on are released post-mortem. One can understand his hesitation at leaving his three children all of his assets at once, but his will bequeathed everything to Mimi O’Donnell, his longtime partner. Our office would have recommended an irrevocable trust instead of a will. If Hoffman wanted O’Donnell to administer his estate so that his children do not grow up to be trust-fund babies, then he could have appointed an independent trustee to carry out distributions to his children with a certain amount of discretion and leveraged the use of incentives. This is known as spendthrift and incentive clauses.”
By leaving all his assets to O’Donnell by means of a will, Hoffman practically handed more than $10 million to the IRS (4). Mr. Beatrice explains: “Hoffman never married O’Donnell, so only a $5.4M estate tax deduction applies in this case. O’Donnell now carries the burden of estate taxation, 35 percent of Hoffman’s net worth above the $5.4 million. His children are not going to see that money because a will under these circumstances offers no tax advantages. His family could have gotten considerably more had Hoffman set up an irrevocable trust.”
In 2003, a documentary produced by one of the heirs to the massive Johnson & Johnson estate shook the high society circles of New York’s Park Avenue and The Hamptons (5). “Born Rich,” a film by Jamie Johnson, interviewed various members of the “trust-fund elite,” individuals with last names such as Trump and Bloomberg. The focus of the film was on the squandering nature of the interview subjects, who did not amount to much outside of profligate spending and snobbery.
“The Born Rich documentary was an eye-opener, but things do not have to be this way,” explains Mr. Beatrice. “There’s a sensible way to bequeath your estate to your children, and that is through an irrevocable trust managed by professional and independent trustee. We mentioned the spendthrift and incentive clauses, which can be established in various ways. The beneficiaries of the trust, for example, can get certain distribution amounts upon completion of certain requirements or milestones. Graduating from college is a popular trigger for a spendthrift clause; getting a job can be another one, or matching of W-2 income. The fact is that clients are only limited by their own creativity when drafting incentives for an irrevocable trust.”
Mr. Beatrice concludes: “With all respect to Sting, Buffett and others who may be shocked by documentaries such as Born Rich, the fear of leaving too much money to your children is unfounded. A solid estate planning strategy can encourage surviving children to prove to the trustees that they have done their part to earn a distribution from the trust, which can be structured in the way that you want so that your children do not end up like the trust-fund babies you disapprove of.”
About Estate Street Partners (UltraTrust.com):
For 30 years, Estate Street Partners has been helping clients protect assets from divorce and frivolous lawsuits while eliminating estate taxes and probate as well as ensuring superior Medicaid asset protection for both parents and children with their Premium UltraTrust® Irrevocable Trust. Call (888) 938-5872 to learn more.
1. money.cnn.com/2012/02/06/pf/romney_kids_trust/index.htm 2/6/12
2. standard.net/TX/2014/08/18/Why-the-very-rich-aren-t-giving-much-of-their-fortunes-to-their-kids.html 8/14/14
3. washingtonpost.com/lifestyle/style/why-the-very-rich-arent-giving-much-of-their-fortunes-to-their-kids/2014/08/10/4a9551b4-1ccc-11e4-82f9-2cd6fa8da5c4_story.html 8/10/14
4. marketwatch.com/story/what-philip-seymour-hoffman-should-have-done-with-his-money-2014-07-25 07/26/14
5. nytimes.com/2003/10/12/style/biting-the-silver-spoon-that-feeds-him-on-film.html 10/12/13
6. newrepublic.com/article/118871/most-wanted-man-philip-seymour-hoffmans-last-significant-role 07/28/14