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).
Other considerations
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 and your
clients. As always, if you have questions, call our office.
Thomas H. Keating has
actively practiced law for more than 30
years, focusing on business
and estate planning, with
emphasis on the automotive
and construction industries.
Mr. Keating belongs to the
State Bar of Michigan, the
American Bar Association
Section on Real Property,
Probate and Trust Law, the
State Bar of Michigan
Section on Probate and Estate Planning, NAIFA, and the
Michigan Forum of Estate Planning Attorneys. He is the
founder of the Financial and Estate Planning Keeping
Current Series as well as the East Side Business and
Financial Forum and is a member of the Financial and
Estate Planning Council of Detroit. Mr. Keating is a
member of WealthCounsel, a national forum of estate and
business planning professionals, multiple chambers of
commerce, and industry associations, and is a frequent
speaker at estate planning forums around Michigan. Mr.
Keating is co-author of Strictly Business, book written for
those facing business and succession planning challenges.