Wise Guy’s Estate Plan Not So Wise
Most memorably known as mob boss Tony Soprano on the HBO series The Sopranos, actor James Gandolfini died in June at age 51. He left behind an estate worth an estimated $70 million. But to many advisors, the way he divided his estate would have gotten the fictional wise guy knocked off for not shielding his millions from the IRS.
In Gandolfini’s will, he left $1.6 million to various friends and relatives. (http://tinyurl.com/knyhf4w) He also left a $7 million life insurance policy to a teenage son from a previous marriage. He split the remainder among four people: 30 percent each to his two sisters, 20 percent to his 11-month-old daughter and 20 percent to his wife.
It’s the combined 80 percent that didn’t go to his wife that has experts calling Gandolfini’s planning clumsy because of a possible tax hit. Up to $30 million could be taken through federal and state estate taxes, says Forbes,. (http://tinyurl.com/mxw24f5)
Whether these figures are true, only time will tell. But in the meantime, Gandolfini’s example offers a cautionary tale for your clients when it comes to planning.
Impact on Widow
Gandolfini’s widow’s portion is safe from federal estate taxes because federal law allows unlimited tax-free transfers to surviving spouses, according to NBC News Business. (http://tinyurl.com/kdn3o23) But other estate bequests more than the $5.25 million lifetime exemption are subject to federal estate taxes. The distribution to his sisters and daughter with his second wife could be subject to a combined federal and state tax rate of 55 percent.
Family drama due to Blended Family?
Besides tax ramifications, there are other considerations clients should take into account. One potential problem is treating children differently, The Wall Street Journal says. (http://tinyurl.com/mz9zerc) By leaving different inheritances for children in a blended family — without an explanation — it could cause tension down the road.
To clear misconceptions, clients can draw up an “ethical will,” or “legacy letter” that spells out what they want to happen when they’re gone. It isn’t legally binding, but it can provide insight into the reasoning of an estate plan.
Another red flag in Gandolfini’s will: He left his Italian estate to his two children together, The Journal says. They are allowed to sell it after they both turn 25, but the will doesn’t mention how it will be maintained. How could anyone reasonably expect a 25-year-old — let alone two children — to effectively maintain a lavish Italian estate?
One last issue, The Journal says, is that the actor’s will gave his baby daughter control of her share when she turns 21. That’s too young. Our suggestion to clients is to name children as beneficiaries of a trust that’s managed by a financial professional. Control can be handed over when they are older or accomplish certain goals (i.e. a degree).
Gandolfini’s missteps could have been avoided if he had:
• Kept it private. If it doesn’t need to go to probate, keep it that way. If Gandolfini had planned better, then his estate probably wouldn’t have hit news sites, tabloids — or this newsletter!
• Used a revocable trust. Placing assets into a trust avoids probate, helps with privacy and improves control and protection issues we’ve mentioned.
• Used tax-efficient gifts and transfers. Poor planning might cost the actor’s estate over 30 million in taxes. His assets could have been redirected to beneficiaries with better planning.
We hope this information was useful to you, your clients and their families. To get more information regarding this or any related topic, please visit our website www.TEPLG.com or call us at 630-871-8778.