by Chad E. Nelson, Esq.
Sopranos fan or not, most people are well aware of the passing of actor James Gandolfini, who played Tony Soprano on HBO’s hit show. Though Gandolfini was not exactly the picture of good health, any time a 51 year old dies of a massive heart attack, it’s safe to call it unexpected. And with unexpected deaths usually come unexpected consequences for that person’s estate.
Gandolfini died with what appears to be only a Last Will and Testament. For some people, just having a Will is fine. For someone with significant assets or a more complex estate though, a Will is generally insufficient. Especially if the decedent hopes to pass along some of his accumulated wealth to heirs. Gandolfini died with what appears to be a whopping $70M estate, with 20% of the estate passing to his wife, and 80% of the estate passing to his sisters and infant daughter. More on this breakdown below.
What are the practical consequences of Gandolfini’s overall estate planning setup? First, by leaving such a large probate estate, Gandolfini’s private affairs have become ripe for public consumption. We probably wouldn’t be talking about anything beyond the shock of his untimely death had he used a simple revocable trust to hold his assets. As has been discussed in previous editions of this newsletter, revocable trusts, while not offering much in the way of long-term care planning or tax protection, at least offer probate avoidance and control of asset management. Contrary to popular belief, a Will does nothing to help avoid the probate process. It’s merely a tool that provides guidance on where a decedent’s assets are supposed to go upon death.
While I certainly wouldn’t have advised Gandolfini to use a bare bones revocable trust, I’d at least have counseled him to consider the multitude of other alternative estate planning strategies to help his family avoid the invasiveness and public scrutiny of probate.
The bigger problem is the estate tax liability Gandolfini’s estate faces. With the federal estate tax assessed on estates over $5.25M, it’s clear that Gandolfini’s estate is going to have a large bill from Uncle Sam. How big? On the $70M estate that Gandolfini is reported to have, he’ll owe approximately $30M of that to the federal government.
The Internal Revenue Code offers an unlimited marital deduction for estates passing to surviving spouses. Thus, had Gandolfini left the entire amount to his wife, there would not currently be any estate taxes owed. But because Gandolfini left 80% of his estate to non-spousal beneficiaries, that amount is taxed immediately upon his death. And because of his poorly drafted Will, Gandolfini’s estate will have the added accounting and legal fees that come with attempting to calculate exactly what 80% of his estate amounts to. Unless he died with cash only, valuing fractional interests in non-liquid assets is a complicated and time consuming process.
Another major issue with Gandolfini’s estate plan is that he left an enormous share of the estate to his daughter, with no conditions on her receipt of the assets. So while she won’t receive these assets until age 21, it’s safe to say that most twenty-one year olds aren’t equipped to handle millions of dollars. Simply having a well-drafted Will that creates trust shares for minor beneficiaries is a simple and easy way to avoid such a problem.
Again, it’s not so much that Gandolfini did a bad job of planning during his life. It’s that he wasn’t sufficiently prepared for the unexpected, and the unexpected happened. These kinds of issues can happen with estates of $70M and they can happen to estates of $700,000. Make sure you’re well-prepared.