The unexpected death of James Gandolfini at the young age of 51 has sparked national interest about the will of the man who made Tony Soprano a household name. The problems it caused remind us about taxes, how to provide for family in a sensible manner and the benefit of efficient practical estate planning. Nobody wants to be remembered for paying unnecessary taxes or giving our money away foolishly.
The consensus is that Mr. Gandolfini's will is a tax nightmare. The original Godfather would literally have had "to go the mattresses" had the first $30 Million of his $70 Million estate gone to the IRS. Although the exact particulars are yet to be resolved, this is wake up call for everyone.
The will left 80% of his estate to his sisters and his 9-month-old daughter which will be subject to "death taxes" of about 55% due nine months after the date of death. The 20% of the estate that Gandolfini left his wife isn't directly subject to death taxes. The will calls for the shares to be calculated after all the taxes are paid, which means his wife will receive 20% of the $40 million left after taxes, instead of 20% of $70 million. There is a difference of $6 Million!
The family may be forced to liquidate assets soon in order to pay the taxes. The exact size of Gandolfini's estate is speculative although his net worth has been estimated at $70 Million. A formal inventory of his assets must be filed in December.
Because Mr. Gandolfini's will had to go through probate, all of this information is public. Most people, regardless of their financial circumstances, should not need to go through probate. It is a public record. The better practice is to create a revocable trust that controls the distribution of assets.
While no one wants to pay taxes, everyone wants their assets to go to the persons they want to receive the assets, and in the best manner the assets should be received. These decisions will frequently change due to life events. A revocable trust is easily changed at any time. While bad planning may result in the Gandolfini family paying unnecessary taxes, it may also result with his beneficiaries not receiving the percentages he intended.
On a more positive note, his teenage son will also will benefit from $7 Million in life insurance proceeds payable to a separate life insurance trust free of estate taxes. People who have young children plan for them to receive assets at age 21. Is that expectation reasonable? Will it result in children failing to work, be educated, lose assets in a divorce or creditor claims? Planning for distributions to children over time with full control, not vesting until much later in life, provides protection to children. Mr. Gandolfini’s will requires that his baby daughter receive significant assets at age 21 free of any protection.
Mr. Gandolfini's will says his property in Italy will go to his son and daughter when his daughter turns 25. But Italian inheritance laws may control and add a share for his wife. Foreign property is different and transferring it with no ability to pay maintenance and taxes may result in the family being unable to keep it.