James Gandolfini’s estate: Disaster or well-executed plan?

I recently read an article about the “disasterous” estate tax planning done by the attorneys for late James Gandolfini. The article pointed out that the actor left the majority of his $70 million estate to his children, family and friends; while “only” leaving his wife 20%. The crux of the article was that, by allowing 80% of assets to pass to people other than his spouse, the estate will unnecessarily pay tax on about $50 million. (The $50 million that would have otherwise been passed tax-free if Mr. Gandolfini had left everything to his wife). The tax bill is reportedly going to be in the neighborhood of $30 million.

$30 million is a substantial check to write to the government; but to assess whether the estate plan is a “disaster”, we need to dig a little deeper. James Gandolfini was married twice and he had a child with each wife: Michael, born in 2000, and Liliana, born in 2012. He met his second wife in 2006 and they were married in 2008. Mr. Gandolfini’s mother was a lunch lady and his father a mason and custodian. He did not land his first acting job until he was 26 and his life changed forever when he landed the role of gangster Tony Soprano in 1999 then became a millionaire many times over at the age of 40.

James Gandolfini’s life was far from ordinary, but the issues that his attorneys had to deal with in preparing his estate plan were very common: multiple marriages, children with different spouses and the unique challenges presented by first-generation wealth. It is not uncommon or “disastrous” for people to pass assets to their loved ones knowing there will be an estate tax to pay as a result, due to the unique nature of the beneficiaries and the assets. What is important is that potential taxes are laid out ahead of time to allow the individual to make informed decisions. Sometimes it is worth the tax bill for someone to pass assets outside of the “traditional” family map of everything-to-the-surviving-spouse.

In Mr. Gandolfini’s case, he chose to establish trusts for the benefit of his children at his death so that he could provide for the children’s well-being immediately and so that he could have some control over how (and when) assets are distributed. He also chose to leave substantial amounts to his sisters and friends. These choices cost the estate tens of millions of dollars in taxes, but that may have been a choice Mr. Gandolfini made. Only he and his lawyers know if the result was “disastrous” or exactly as planned.

It is worth noting that Mr. Gandolfini could have left the assets in trust for his wife’s benefit, then provided for the distribution of these assets to his beneficiaries on upon her death. This strategy is fairly common. In this case, however, Mr. Gandolfini’s surviving spouse is only 45 years old and that hypothetical distribution to the kids may not take place for thirty or forty years. Mr. Gandolfini may also have been advised to transfer some of his assets during his lifetime, at this point it is not clear whether any sort of plan was in place.

Properly executed planning documents can help parents protect their children from themselves and from creditors and predators. Our firm will be hosting a seminar to discuss the planning challenges that families face when planning for minor children. We will talk about the red flags that parents should be looking out for and then discuss the legal and financial variables that emerge when we add a child to the mix. The seminar will be held from 7:30-9 AM on July 25, 2013. To register for this seminar, please contact us at events@samuelslaw.com or 503-226-2966. Space is limited, so be sure to contact us soon.

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