No matter how much you have, estate planning is essential.
When James Gandolfini, the actor who played mob boss Tony in HBO show “The Sopranos”, died of a heart attack at 51 last month, he left an estate valued at roughly $70 million. Commentators have declared his estate plan a “disaster” because the lack of planning leaves a significant estate tax bill. This means the people he loved will receive less money while the government will get a big chunk of his money to use as it sees fit. This violates the first principle of estate planning – staying in control. You only have three choices where your money goes when you die: Your family, charity and the government. With better planning less money a smaller check would have to be made out to the IRS and Gandolfini’s loved ones and favorite charities would have ended up with more. While many people will not have to worry about paying estate taxes there are other lessons to be learned.
The next problem is that because Gandolfini had a will based estate plan, in order to pass title to his property to his beneficiaries, his will had to be probated in New York. Once that happened, his will became a public record and now anyone can see who he left his assets to. To better protect his privacy it would have made sense to have a trust based estate plan. That way probate would not have been necessary and the whole world would not have been able to learn the names of his beneficiaries and how much he left them.
Another mistake in Gandolfini’s planning is that assets were left outright to his sisters. Because his sisters will own the assets outright , they are subject to being taxed twice: first at their brother’s death and again when they die. To avoid having to pay estate tax twice each sister should have been left her share in a continuing trust. Had this been done the money left to them would not have been in their own estate when they die and wouldn’t be subject to estate tax a second time. Each sister could have been named as trustee of her own trust with broad powers to use the money for their “health, education, or maintenance.” In addition, through a “power of appointment” each sister could have determined who the trust would benefit and who would act as trustee if there were any assets remaining when they died. Finally, leaving money to his sisters in a trust rather than outright would have protected the gift from both creditors and predators who might be attracted by his sisters’ new found wealth.
Another problem is how Gandolfini left assets to his two children- Michael, from his first marriage, and Liliana, who is less than a year old. Under the terms of their trusts, each child gets complete control over millions of dollars the day they turn 21. It is not a good idea to have a trust end at a certain age because you don’t know what the child will be like. Is a 21 year old mature enough to make decisions on how to spend money? What if they have a drug or alcohol problem? It would have been better to have a continuing “discretionary” trust with professional trustees to manage and distribute money to the children.