Why James Gandolfini’s Will is a “Tax Catastrophe”- How You Can Avoid the Same Fate

Estate Planning Mistakes of Celebrities Continued….

Last fall, our newsletter featured a series of articles entitled “Lessons Learned from Estate Planning Mistakes of Celebrities,” demonstrating why probate is such a nightmare and lessons that can be learned from the costly mistakes of celebrities. Celebrities, including Whitney Houston, Amy Winehouse, Etta James and Michael Crichton, who made estate planning mistakes, were explored. We will now continue this series with James Gandolfini, who passed away last month, leaving his heirs $70 million and a hefty tax bill.

James Gandolfini was born in Westwood, NJ in 1961. He began his acting career in New York theater, where he got his first major role on the stage in the Broadway revival of “A Streetcar Named Desire” with Jessica Lange and Alec Baldwin. James’ breakthrough role was his portrayal of Virgil the hitman in Tony Scott’s True Romance (1993), but the role that brought him worldwide fame and accolades was as complex Mafia boss Tony Soprano in HBO’s smash hit series “The Sopranos” (1999). He died unexpectedly of a heart attack last month in Rome at age 51.

The star’s biggest mistake is that he didn’t have even have a Living Trust, so his Will was filed publically in court (view a PDF of his Will) and has to go though the nightmare of probate in New York.  New York has a very detailed probate system set forth in both the state law and the court rules. As it is in most states, probating an estate in New York can be time-consuming, taking up to 2 years to complete. It can also be expensive, and can take anywhere from 3%-8% of your assets away from your beneficiaries, which doesn’t include estate and income taxes that may be due and payable during the course of the probate administration. Compare this with the cost of settling a Revocable Living Trust, which will range anywhere from less than 1% to 5% of your assets. Lastly, as you can see from all the information that is already readily available about Mr. Gandolfini’s estate, probate matters are part of the public record allowing anyone to find out the size, contents and beneficiaries of the estate.

Besides forcing his loved ones to endure the horrendously expensive and time-consuming nightmare of probate, it is certainly eyebrow-raising to see that he left only 20% of his estate to his wife, Deborah Lin, 30% to each of two sisters and 20% to his baby daughter Liliana, who was born in October 2012.  His 13-year old son, Michael, was left an insurance trust worth $7 million, and all of his jewelry and clothes. It’s not known whether Gandolfini put any other assets into the trust for Michael in addition to the life insurance policy.  According to Gandolfini’s long-time business manager, Valerie Baugh, “Since Michael is so well provided for by the trust, he doesn’t need the court to appoint a legal guardian to protect his interests as the case winds through the probate process.”

For a character who made millions spurning the government on “The Sopranos,” it is ironic that in death, the IRS will likely claim almost half of the actor’s fortune.  Because of Mr. Gandolfini’s failure to do appropriate Estate Planning and Estate Tax Avoidance planning, the actor’s estate — valued at approximately $70 million – will likely have to pay over $30 million in federal and state Estate Taxes. The total Estate Tax due will be due a mere nine months after Mr. Gandolfini’s untimely death.  In all likelihood, significant assets will need to be sold to generate liquidity to meet this Estate Tax bill.

How could this have been avoided?

  • He could have left his wife a larger portion of his estate, either outright or in a trust which qualifies for the marital deduction.  Federal tax law allows an unlimited transfer of property to a surviving spouse without imposing any estate tax. This is a result of the “unlimited marital deduction.” In addition to the unlimited marital deduction, Federal tax law allows every individual to transfer a specific amount tax-free at death to a beneficiary or beneficiaries other than a spouse. This amount, called the “exemption equivalent amount,” is currently $5,250,000.
  • For high net-worth married couples like the Gandolfinis, a very basic way to minimize Estate Taxes would have been to establish an estate plan so that upon the death of the first spouse a “Family Trust” (also called a “Credit Shelter Trust” or “ByPass Trust” or “B Trust”) would have been created. Typically, the purpose of the Family Trust is to provide support for the surviving spouse during his or her lifetime, with the remainder of the trust then going to the children upon the death of the surviving spouse. 
  • There are many other additional strategies, including the use of specialized irrevocable trusts, that could have drastically minimized if not completely eliminated the Estate Tax bill that the Gandolfini family now faces.

It is possible that Mr. Gandolfini was told about the tax bill but was willing to pay the tax as long as his goals were met in the will.  In addition, given that he died younger than he likely expected, he may not have completed estate-planning techniques that would have removed some of these assets from his estate and supported his heirs in other ways.

Here at The Fairfax Estate Planning Law Firm of Evan H. Farr, P.C., we advise that our clients should almost always use a Living Trust as their primary Estate Planning tool, in order to protect assets at death from having to go through probate.  A Will allows you to direct who receives your assets (i.e., who are your beneficiaries) and who manages your estate (i.e., who acts as your executor), but a Will does NOT protect your assets from becoming public knowledge and going through probate.  Only a properly funded Living Trust protects your assets from going through the “nightmare of probate.”

Did you know that 66 percent of adults don’t have an Estate Plan? The catastrophic tax liabilities in this high-profile case serve as a reminder that putting off estate planning can hurt those left behind. Whether you have a $70 million estate or a $70 thousand dollar estate, proper estate planning is critical. And since the future is so unpredictable, it’s never too early to get started with your planning. Call 703-691-1888 to make an appointment for a consultation at The Fairfax Estate Planning Law Firm of Evan H. Farr, P.C. today.


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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.

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