Estate Planning Misstep Costs James Gandolfini Heirs $30M


James Gandolfini

(Photo by Richard Shotwell/Invision/AP)

A month after his untimely death, James Gandolfini’s will is now being picked apart like Tony Soprano’s brain at a therapy session with Dr. Melfi.

The 51-year-old Gandolfini left a will that is now public for his estimated $70 million estate. Drafted in December 2012, it leaves 20 percent to his wife Deborah Lin, 30 percent each to his two sisters and 20 percent to his newborn daughter Liliana, an existing trust of unknown amount to his son Michael along with a life insurance policy and first dibs on purchasing his New York condo, and $1.6 million spread among various friends.

The way the will is set up, Gandolfini’s estate will get stuck with a huge estate tax bill.

Had he done some basic trust planning, he would have taken advantage of a $5.25 million federal exemption and other ways to save on estate taxes. The top rate just went up to 40 percent.

His estate will also have to fork over death taxes to New York, his state of residence, which, unlike most states, does not mirror the federal exemption and exempts only the first $1 million from estate taxes.

It may seem like a no-brainer to save tens of millions of dollars on taxes, but some estate planning lawyers say it may not have been a mistake at all.

Attorney Jennifer Corcoran

“You can clearly see from his will, his Tony Soprano response is: ‘F— the IRS and New York state; I’ll pay the taxes because I want the money to go to my kids, family and friends,’” said Jennifer Corcoran, a trust and estates attorney in Albany, N.Y.

She added that because his estate was so big, it was going to be on the hook for estate taxes anyway.

As for the loss of the marital exemption, Gandolfini may have decided against creating a spousal trust despite the tax advantages.

If he had created a trust for his wife for her life and then to his children, that would have taken advantage of a combined marital exemption of $10.5 million from federal estate taxes, but it would mean that his children would not get the money until his wife, who is 44 years old, died.

“To get the spousal exemption, the assets have to be in trust during their lifetime. That would have tied up anything going to the kids, including his son Michael from a previous marriage who would have to wait out his stepmother’s death,” said Corcoran.

Instead, Gandolfini set up trust for his two children who will be able to get the money when they are 21 years old.

However, Gandolfini could have set up his sister’s shares for better tax savings.

“He might have frankly been better off leaving them as irrevocable life insurance trusts, which is tax-free money to his sisters, or charitable remainder trusts to provide his sisters with lifetime security and a much smaller chunk to the IRS,” said Janet L. Brewer, an estate planning attorney in Palo Alto, Calif.

Instead, they will be on the hook for about $16 million in federal estate taxes.

For most people, who don’t need to worry about having more than the $5.25 million marital exemption, the main obstacle is creating a will in the first place.

“Having a will is critical, especially if you have young children,” said Corcoran.

Other documents everyone should have are a durable power of attorney that allows someone to handle your financial assets and a health care proxy that allows someone to make health care decisions if you can’t, Corcoran said.

But too many people put off creating these documents.

“Unfortunately a lot of people don’t want to deal with it. Who wakes up in the morning and says, ‘Gee, I think I’ll think about dying and figure out what to do about it?” said Brewer. “It’s an unpleasant but a necessary task if you don’t want to leave a mess behind you.”

 

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