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Estate Planning Lessons
From James Gandolfini's Will
That the late James Gandolfini was a beloved actor is without question. Now that his will has been revealed, he has a new fan: The IRS.
Gandolfini's will was written in a way that estate planning experts say skipped many options for minimizing his tax bill.
One example: Gandolfini left just under 20 percent of his assets to his wife, with the rest going to his sisters and infant daughter. (He made "other provisions" for his son from a previous marriage, the will says.) With less than 20 percent of the assets covered by Gandolfini's will going to his wife, close to 80 percent could be subject to state and federal taxes that together can reach a rate of 55 percent.
Certainly, Gandolfini may have had priorities other than taxes, like wanting to make sure his son would not be dependent on his stepmother for his inheritance.
Gandolfini may also have had assets like retirement accounts and life insurance policies that are not covered by the will and its tax rules.
But legal and tax experts say that if minimizing taxes was a priority, Gandolfini's will could have been better written.
Since we don't know what was explained to him and we don't know what his choices were, we can never be sure what his motivating factor was. While most people do approach estate planning in the most tax efficient way, many do not. It would appear from what's been revealed about his estate, that Gandolfini seems to have been in the latter camp.
So how can you be smarter than James Gandolfini when it comes to estate planning?
For starters, consider taking greater advantage of the marital deduction. This tax deduction allows a spouse to transfer an unlimited amount of assets to their surviving spouse, and deduct it from the amount subject to estate tax.
Trusts are another tool for managing sizable estates. Gandolfini could have made some significant gifts to his siblings and to his daughter and put them in trust and told the trustee not to distribute these until I'm gone, but grow these during my lifetime. Once he's put them in trust, the assets would avoid the estate taxes.
Still, trust assets have to have time to grow, and Gandolfini died at age 51. To make sure trusts have value at any time, Gandolfini could have created trusts and had the trustees take out life insurance on him. That way, the insurance would have provided for his heirs even if the trusts themselves were still small.
Another issue with Gandolfini's will is the plan to leave assets for his infant daughter that become hers free and clear when she turns 21.
Our recommendation is typically to put it in trust until 25, 30, or even 35 because that gets the kids through college, a job and starting a family. And spacing out the distributions at different ages ensures that if a child makes a mistake or a bad investment, it does not waste their entire inheritance.
Then there is the matter of real estate. Gandolfini owned a home in Italy, and in his will he give each child a 50 percent stake. But there is no mention of how to pay for upkeep--and there seems to be no reference to Italian laws that would come into play. For example, in some European countries there are laws governing who inherits real estate.
If you have a house in Italy or any other country for that matter, you should also be talking to local counsel to advise you about the local laws.
In the end, no one in Gandolfini's family is likely to come up short. But paying lower taxes would have left them even better off.
Please feel free to contact Betty Chan to schedule your no cost Family Wealth Planning session with one of our attorneys.
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