In June 2013, The Sopranos star, James Gandolfini, died from a sudden heart attack while vacationing in Italy. Gandolfini was survived by his wife, infant daughter, son from a previous marriage, and two sisters. At the time of his death, his estate was valued at an estimated $70 million. Although Gandolfini had a large estate, he did not develop an effective estate plan to safeguard his assets. Although it is very unfortunate to see someone pass away at such a young age (Gandolfini was 51), his death can be used as a lesson for everyone of the importance of having an estate plan that protects their assets for their loved ones.
One of the more unfortunate problems with Gandolfini’s estate plan is that it did not avoid probate. When an estate is admitted for probate, it becomes public record. The probate process can also be very costly and lengthy. There are ways of avoiding probate, such as utilizing trust agreements. Had Gandolfini put his assets into a trust, probate could have been avoided and the issues with his estate plan would not have become public record.
2013 Federal Tax Law Changes and Its Effects
The American Taxpayer Relief Act of 2012, enacted in Janaury 2013, made permanent a 40% federal estate tax rate for individual estates valued over $5 million (adjusted annually for inflation). Any estates valued less than this amount are not subject to the federal estate tax. Federal tax laws allow for unlimited tax-free transfers to spouses, but estate taxes are applied to transfers to any other individuals when the transfers exceed $5 million. According to an article written by the Ohio Society of CPAs, Gandolfini’s Last Will and Testament provided for 80% of his estate go to his daughter and sisters, and 20% to his wife (The Ohio Society of CPAs, The Voice, James Gandolfini has One More Story to Tell, August 2013). Therefore, the gifts to his daughter and sisters are subject to the 40% estate tax, but the gift to his wife is not. Perhaps he could have left more to his wife to avoid the estate tax or utilized the use of trusts to minimize the tax burden on his heirs.
Inconsistent Distributions to His Children
Another major mistake Gandolfini’s estate plan makes is that it does not hold his daughter’s inheritance in trust over a certain amount of time. According to Forbes, Gandolfini’s Last Will and Testament provides that his daughter is to receive significant assets when she turns 21 (Robert W. Wood, www.forbes.com, 6 Estate Planning Lessons From James Gandolfini’s Will, July 20, 2013). When she turns 21, she will inherit a large amount of money without any spending restrictions. Most would say that 21 year-olds are not the most fiscally responsible. If Gandolfini had set-up a trust for his daughter, he could have restricted distributions to her over a period of time. However, because he only provided for her through his will, his daughter will “hit the lottery” on her 21st birthday.
But Gandolfini’s estate plan was not entirely a complete failure. He formed an Irrevocable Life Insurance Trust for his son, which allowed Gandolfini to pass on about $7 million to his son tax-free (Forbes). Because the trust agreement is not admitted to probate and is unavailable to the public, it is assumed that the $7 million will be held in trust for his son over a period of time, rather than as one distribution. This is a stark contrast to the method in which Gandolfini’s daughter will take her inheritance. The disparity between the two highlights the importance of establishing trusts for your beneficiaries, especially if they are young or fiscally irresponsible.
Gandolfini’s treatment of his foreign real estate pinpoints another problem. In his Last Will and Testament, Gandolfini provided that his son and daughter would both take a 50% share in his vacation home in Italy (Forbes). However, this arrangement might run contrary to Italian “forced heirship” inheritance laws, where his surviving spouse might also be able to claim a 1/3 share of the property. Furthermore, his estate plan did not designate who would maintain the home until his children reach the age of majority (Forbes). If you happen to own real property in another country, this situation highlights the importance of meeting with an attorney who is licensed in that country to identify potential issues associated with that property.
In conclusion, although we don’t know everything about Gandolfini’s estate plan, what we do know raises many important issues, especially for individuals who have significant assets and/or blended families. Avoiding probate, minimizing the tax burden, and preventing lump distributions to beneficiaries are just a few issues families need to consider when developing their estate plan.
Bill Hesch is a CPA, PFS (Personal Financial Specialist), and an attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning. He also practices elder law planning, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky. Contact Bill if you wish to review your assets and your estate plan. He can give you the peace of mind that your family’s financial security will be taken care of in case of your unexpected death, illness, or disability.
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