Advisers last week chimed in about the tough lessons to be learned from an ill-considered estate plan, after it was revealed that 40% of the late actor James Gandolfini's $70 million estate may be owed in taxes.
Provisions in Mr. Gandolfini's last will and testament suggest that the actor's estate may owe up to $30 million in federal and New York taxes, according to William Zabel, founding partner of Schulte Roth & Zabel LLP.
Mr. Gandolfini, best known for his role as mobster Tony Soprano, signed his will in December, six months before he died of a heart attack while vacationing in Italy. He was 51.
Mr. Gandolfini's will left 30% to each of two sisters and 20% to his daughter Liliana, who was born in October. His wife, Deborah Lin, is to receive the other 20% of his estate, as well as all his personal property other than his clothing and jewelry, which Mr. Gandolfini left to his 13-year-old son.
Ms. Lin's 20% likely won't create an immediate estate tax liability because federal rules usually allow such inheritances without spurring a tax until a spouse's death. But the sisters and daughter who will inherit 80% of Mr. Gandolfini's estate will have to pay 40% to Uncle Sam beyond the first $5.25 million federal exemption.
“His heirs will not be pleased with their tax advisers,” said estate attorney Gary Wolfe, who expects that the case will end up in litigation. “You can't stick a client with a $30 million tax problem and ride off into the sunset.”
If the estate has to liquidate assets in order to pay the taxes, those assets will have to be sold at whatever the market bears, “so then they get killed twice,” Mr. Wolfe said.
At a minimum, an irrevocable trust should have been set up for Mr. Gandolfini to use to pay insurance premiums toward a life insurance policy that would have covered expected estate taxes, Mr. Wolfe said.
“Nobody likes losing money, especially when you don't have to,” Mr. Wolfe said.
Mr. Wolfe, who doesn't have knowledge of Mr. Gandolfini's affairs, said that the actor may have been advised to do further estate planning, but he refused.
Mr. Gandolfini also may not have been able to get insurance, Mr. Wolfe said.
Mr. Gandolfini had admitted to having cocaine and alcohol issues in the past, and he was overweight.
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, according to Frank Fantozzi, a tax-planning specialist and chief executive of Planned Financial Services.
Or, given that Mr. Gandolfini 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, Mr. Fantozzi said.
Such plans may have included setting up family limited partnerships on properties that Mr. Gandolfini owned or creating a credit shelter trust to make sure that the actor and his wife made full use of their estate tax exemptions, Mr. Fantozzi said.
The potential eye-popping tax liabilities likely in this high-profile case serve as a reminder that putting off estate planning can hurt those left behind.
PLAN FOR THE KIDS
“Whether you have $70 million or a more modest estate, good planning is important,” said Danielle Mayoras, principal partner at Barron Rosenberg Mayoras & Mayoras PC. “When you have minor children, it's even more important.”
The will mentions that Mr. Gandolfini has a separate trust set up for his son.
Mr. Gandolfini's will calls for his daughter to receive her wealth at 21, an age that many think is too young to handle such a large fortune.
It could have been spread out so that it became hers over time, said Ms. Mayoras, who co-wrote “Trial & Heirs: Famous Fortune Fights” (Wise Circle Books, 2009).
“When you have an estate that size, most people don't want their children getting all the money when they are in their 20s,” Ms. Mayoras said.
As to how anyone could have allowed so little planning to be done for such a large fortune, she said that clients don't always want to follow the advice their attorneys give them.
“Sometimes clients are their own worst enemies,” Ms. Mayoras said.
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