There are those who observed James Gandolfini’s passing in the context of his acting career, particularly his iconic role as Tony Soprano. They are called fans. Then there are those who saw it as a chance to peak into his estate planning and critique it. They are called estate planners.
It has been reported in various news reports, the first being the New York Daily News, that Gandolfini’s estate was worth $70 million and that those who come out with the largest shares will be the government, his sisters and his infant daughter. Bemoaning this as an estate planning fiasco these observers claim that the big loser will be the estate generally, his current wife and his son from his first marriage. While that may be true at some level this also may be simplistic, ignoring the possibility that this may be just what Gandolfini intended or that he may have left many millions to family members outside of his estate. The truth is he probably could have achieved the same result and left more to those family members he intended to benefit and less to the government if he wanted, but the magnitude of the mistake or whether it was a mistake at all is currently unknown. Whatever else it is this is an object lesson in being thoughtful and careful in one’s estate planning regardless of level of wealth and being explicit in one’s intent. For the sake of his attorneys, I hope he was and I hope they have that proof in their files.
Here’s what we are being told and how it seems to plays out (I have not seen any document or anything other than news reports which lack detail and require much speculation):
1. 80% of his assumed $70 million estate, or $56 million, is left to his sisters and 9 month old daughter, the latter in a trust that distributes at 21. The other 20% goes to his wife, yielding a marital deduction of $14 million. (I am assuming away the $5.25 million exclusion as either utilized for lifetime gifts or based on the fact that we are
assuming round numbers anyway.) At a combined federal and state tax rate of about 55% on the taxable $56 million, this means that the government gets $31 million and the entire family shares what’s left, $39
million. With more careful planning the government’s share could have been reduced, but given that he died at 51 it is not unusual that even wealthy people put off the necessary planning when death seems so remote.
If there were a mistake here it was not foreseeing the inevitability of death if not the timing of it.
2. What has planners perplexed is that 20% of his estate “after tax” is left to his wife. Normally, given the marital deduction, if the wife were to get 20% one would expect her to walk away with 20% of the $70 million (hence the $14 million marital deduction referenced above), but it really seems to mean 20% of approximately $39 million, using the numbers we now have. This means she gets about $7.8 million rather than $14 million. We may be perplexed but this could have been his intent. Operating as I am with imprecise information it appears that the full
marital deduction was utilized to benefit the family as a whole but it was not to the wife’s individual advantage. In other words, this does not generate greater tax, it only determines who bears the tax. All family members, wife included, are bearing a proportional share of the estate tax. Wife nets $7.8 million (not $14 million), sisters and daughter together net $31.2 million (not $25 million), governments (state and federal) still net $31 million.
3. There seems to have been a trust set up for his wife with an undisclosed sum. This may have been so substantial as to make the “errors” inconsequential results of what he desired anyway.
4. There also seems to have been a trust for his 13 year old son with at least one $7 million life insurance policy that should be immune to estate taxes. We do not know if there are other assets left to his son and if there are other insurance policies. Frankly with his wealth, $7 million of life insurance was way too little. Again, sufficient life
insurance and other assets gifted before death may tip the balance from bad planning to “well, can’t keep it all.”
5. Did he really give his daughter access to the trust assets at 21? That might have been his biggest mistake.
6. Another unknown is how he handled his real estate and assets in other countries. It would have been a mistake to not provide for separate handling under each country’s laws.
7. None of this accounts for what might be the most valuable asset in Gandolfini’s estate, the royalties from intellectual property. I have heard that Michael Jackson’s estate has made as much if not more from royalties than Michael made during his life. Who gets these? If it is the estate this really may be an expensive mistake; if the trusts that Gandolfini set up before his death then we may be calling it good planning.
The one possibility most have left off the list of intentions is that he intended to pay huge taxes to the government, maybe in repayment of all that Tony Soprano cost