The recent death of James Gandolfini, the 51-year-old actor most famous for playing the popular New York Mafia boss Tony Soprano, was a shock to people who knew him – and to people who only knew of him. Unfortunately, his untimely death came with another shock to his family. Through poor estate planning, the Internal Revenue Service will get about $30 million in taxes to the detriment of Gandolfini’s intended beneficiaries.
The Pitfalls of Poor Estate Planning
Poor estate planning can result in a variety of pitfalls. In Gandolfini’s case, his family is the one who lost out twice – emotionally and financially. According to DailyFinance, Gandolfini’s estate was worth about $70 million. In his estate plan, Gandolfini gave $1.6 million to friends and relatives, made provisions for his personal property and his house and land in Italy and set up a life insurance policy for the benefit of his son. The balance of his estate was split as follows:
- 30% to one sister
- 30% to another sister
- 20% to his wife
- 20% to his infant daughter who will receive her share on her 21st birthday.
The problem? Gandolfini left approximately 80% of his estate to his sisters and his daughter and only 20% to his wife. By leaving only 20% of his estate to his wife, Gandolfini missed out on the unlimited marital deduction available for certain gifts made to an individual’s surviving spouse. Had he instead left his assets to his wife, either outright or in a trust qualifying for the marital deduction, he could have deferred estate taxes (perhaps as much as $30 million) until his wife’s death. That deferral has substantial value given Gandolfini’s untimely death and the fact that actually his wife could live another 30 years. By paying taxes now, rather than later, his family lost out on the ability to earn income on the taxes that Gandolfini’s estate paid earlier than it had to.
What Gandolfini Could Have Done Differently?
Gandolfini certainly isn’t the only person whose “less than perfect” estate plan has resulted in paying the IRS instead of the decedent’s family. There are several things that Gandolfini could have done differently to improve his estate planning outcomes. As mentioned, he could have deferred taxes and increased the return to his family by making better use of the marital deduction. In addition, the marital trust will ensure that at his wife’s death, his assets pass to his children, including his son for a prior marriage. By leaving 20% of his estate outright to his spouse, she may bypass his son, her stepson, at her death, by giving all of the property she received from her husband only to her daughter.
In addition, Gandolfini could have used a revocable “living” trust which would have protected his privacy so that the rest of the world was not talking about his ill-advised estate plan after his death. Using a revocable trust also would have spared his estate an expensive ancillary probate proceeding in Italy. Finally, 21 seems like a little young for his daughter to inherit $14 million. He should have placed that money in a trust which would have held the money for the benefit of his daughter beyond her 21st birthday to later date when presumably she would have more maturity and discretion to handle her inheritance.
Estate Planning Tips
Let’s face it, no one likes to contemplate his or her own death – which is the main reason people put off estate planning. If Gandolfini’s situation teaches us anything, it’s that sometimes you just have to get it done or the IRS will get the money you wanted someone else to get. Here are some simple estate planning tips:
- Create a will. Although it may seem overly simplistic, creating a will makes sure that your wishes are carried out after your death – not someone else’s. Dying intestate (without a will) can also create an administrative nightmare for your loved ones, who may have to endure endless litigation that has the potential to tear apart the family members you would have most wanted to support.
- Create a living will. Unlike a traditional will that makes sure your wishes are carried out regarding financial and property matters, a living will lets you make your wishes known about life-preserving treatment when you cannot communicate those wishes because of your medical condition. So, if you are unable to communicate, a living will tells doctors what you would, or would not, want to be done.
- Create powers of attorney. Assigning a power of attorney simply designates someone else to make decisions on your behalf. A health-care power-of-attorney will let a loved one act more broadly on your behalf if you’re unable to make your own decisions about medical treatment. A durable power of attorney will let someone take financial action on your behalf if you’re incapacitated. Each can be as specific or as broad as needed.
An experienced estate and tax planning attorney can help you to ensure that your wishes are known and carried out in a way that is financially responsible and that all of your documents coordinate with each other – such as investments, life insurance and other financial planning instruments. An experienced estate planning and tax attorney can help you achieve those goals – and The Wooten Law Firm has the experience you need.
We have represented clients for more than 20 years in all types of commercial transactions, both large and small, and we have assisted families with both basic and sophisticated estate planning and estate administration needs. Let our experience help you!