James Gandolfini, who won three Emmy awards portraying mob-boss Tony Soprano for eight years on HBO’s The Sopranos, died on June 19th. That day, he was touring Rome with his 13-year old son, Michael, when he suffered the sudden and fatal heart attack.
Gandolfini had parlayed his acting success into a reported net worth of $70 million. Last December, he had the foresight to sign a new Last Will and Testament. Gandolfini also had created at least one trust — and perhaps more — as referenced in his will. While it would appear at first blush that Gandolfini did the proper estate planning, the recent revelation of his will (which you can read here) shows otherwise.
To put it bluntly, James Gandolfini’s estate is a mess. Gandolfini failed to do the proper tax planning that would have enabled his estate to avoid — or at least reduce and delay — paying estate taxes. As reported by the New York Daily News, Gandolfini’s planning failure subjects 80% of his estate (although, it is actually more than 80%) to the federal estate tax. At a rate of 40% for all assets over $5.25 million, that totals more than $20 million in federal estate taxes alone.
The State of New York will then take its turn, taking a state estate tax of about 5% starting after the first million dollars, and going up from there to 16%, to the extent the assets exceed about 10 million dollars. That could reach as high as $10 million or so in state taxes. Both the federal and state tax bills are due nine months after Gandolfini’s death.
Anytime a person who dies leaves assets to his or her spouse, the estate tax does not apply to those assets passing to the spouse (until the spouse’s death, at which time the spouse can then use the combined estate tax exemption for both spouses). Here, because Gandolfini left less than 20% of his estate to his wife, the rest of the estate does not enjoy that estate tax savings.
Perhaps James Gandolfini did not want his wife, Deborah Lin, to receive the bulk of his estate. Indeed, his will left most of his estate to other family members, friends, and his former assistant. Gandolfini specified in his will that he had already set up a trust for his son, Michael, and had also made other arrangements to benefit his wife outside of his estate (such as through a separate trust, joint ownership, or as a beneficiary of a life insurance policy).
Further, there are already some rumblings that Deborah Lin, who is the mother of Gandolfini’s baby daughter, Liliana, and Marcy Wudarski, Gandolfini’s first wife and the mother of his son, Michael, are fighting over his estate. Whether these initial reports of fighting are true or not, the way that Gandolfini’s estate planning was done can only exacerbate any trouble that erupts because the will is subject to the probate court process.
Gandolfini could have placed all of his assets in one or more trusts, which could have provided for much more sophisticated estate tax planning and still left his assets to those individuals he wanted to benefit without the huge estate tax bill. By using properly-funded trusts instead of a will, he also could have kept his affairs private, out of probate court, and made his affairs much easier to administer.
James Gandolfini’s will, like every will, had to be filed in probate court to be administered. Once filed, it is a public record open to the world to see. Further, the probate court is often a breeding ground for fighting, which is quite likely if the reported bad blood between the mothers of his two minor children is accurate.
For example, Gandolfini’s Italian real estate is to be held in a trust (a testamentary trust created through the will and overseen by the probate court, not a private trust as he should have used). This real estate will be held until his children reach the age of 25. Under the will, the named trustees are his attorney, one of his sisters, and Deborah Lin. The three trustees will have to report to the court regularly about the Italian property. This may get complicated because Gandolfini’s will asks for the property to be kept in the family, but who is going to pay to maintain it?
If Michael’s mother does not agree with how the Italian holdings are being managed prior to Michael’s 18th birthday, it will be quite easy for her to object to it on Michael’s behalf in probate court. After he turns 18, then Michael has the right to object for himself, until he receives the property at age 25.
But, will Michael even be mature enough to receive his share of that property when he turns 25? Further, Gandolfini’s daughter, Lilian, will receive 20% of the residual estate when she turns 21 — again, with it being held in trust for her until then.
It’s doubtful that his children be responsible enough to manage assets worth millions when they turn 21 or 25. Many wealthy people use trusts to make sure their children receive inheritances when they are older and more responsible. James Gandolfini is not the only example of a recent celebrity who died and made this mistake, as discussed in this video:
The entire situation is odd because Gandolfini clearly gave considerable thought to how he wanted his estate divided — naming multiple beneficiaries, in varying amounts, and creating a separate trust for Michael. Why didn’t he see it through all the way and use trusts to allow all of his assets to pass outside of probate court, and with estate taxes minimized?
Likely, we will never know whether his legal and financial advisers are to blame, or whether the late Soprano star received proper estate planning advice and failed to act on it.
One thing is certain, though. James Gandolfini’s faulty estate planning provides a good lesson of the types of complications that can arise for people who rely heavily on a will. For most people, it is much better to use a properly-funded trust — especially for someone with assets worth more than the estate tax threshold.
By Danielle and Andrew Mayoras, co-authors of Trial & Heirs: Famous Fortune Fights! For the latest celebrity and high-profile cases, with tips to protect yourself, your loved ones, and your clients, click here to subscribe to The Trial & Heirs Update. You can “like” them on Facebook and follow them on Twitter.