Part 2: Was James Gandolfini's Will as Unwisely Constructed as it Seemed?
Last week, we focused on James Gandolfini, who died of a heart attack at age 51, leaving his heirs $70 million and a hefty tax bill (read Part 1). After the contents of his Will became public, many experts found fault with it, saying it was unwisely constructed and it could lead to lawsuits and millions in taxes that could potentially have been avoided with better planning. Recent news and statements from the lawyer who drafted the Will and from his business manager make it seem that Mr. Gandolfini knew what he was doing and that his estate plan accomplished its purpose, no matter what others think.
How could this be so?
- Mr. Gandolfini may have had assets in other vehicles that would mitigate his tax liability. In a recent NY Times article, Gandolfini's lawyer, Roger Haber, hinted that the size of Gandolfini's estate and his tax bill are inaccurate. According to Haber, "[e]veryone is focusing on some number that someone made up and the will as if it was the entire estate plan. Mr. Gandolfini knew the difference between a probate asset -- which is governed by his will -- and a non-probate asset, like a retirement account, life insurance policy or asset held in an irrevocable trust." He didn't give specifics, but implied that Mr. Gandolfini had assets in other vehicles that would mitigate his tax liability.
- He may have done more extensive estate planning than his will suggests. A separate affidavit filed by his business manager, Valerie A. Baugh, said that, in 2002, Mr. Gandolfini bought a $7 million life insurance policy for his son and put it into an irrevocable life insurance trust which, if done properly, would have taken the proceeds of this life insurance policy out of his taxable estate.
- He may have used the opportunity to finance other trusts, taking advantage of the $5.12 million gift tax exemption, valid until the end of 2012. Given that his Will was signed in December 2012 -- when wealthy people around the country were rushing to take advantage of a $5.12 million gift tax exemption that was set to expire -- he may have used that opportunity to finance other trusts with his gift tax exemption. On the other hand, signing his will when he did could have been a coincidence. His daughter with his second wife was 2 months old at the time, so he might have felt compelled to update his will for her.
- Taxes might not have been the most important consideration. He may have been trying to provide for the children from the first marriage, the second marriage, and a wife who may be the same age as his sisters, not paying mind to the potential estate taxes. Had he wanted to avoid federal estate taxes, he could have left everything to his wife. But perhaps his goal was to provide for his wife and his sisters equally.
One thing for certain that his lawyer could have and (in my humble opinion) should have done differently, was use Revocable Living Trust instead of a Will. It is my strong opinion that there is almost never a good reason to use a Will as a way to transfer assets at your death, because Wills force your assets through the court system and the very public, time consuming, and expensive process of probate. A good estate plan always uses a Revocable Living Trust as the central planning tool, and NOT a Will. A fully-funded Revocable Living Trust would have avoided the nightmare of probate for all of Mr. Gandolfini's assets and would have saved his estate and his family from all of the publicity swirling around his very public Will. With a fully-funded Revocable Living Trust, no one would know anything about Mr. Gandolfini's assets or his intentions, which would be better for his estate and better for his family.
Despite what I consider to be a clear mistake made by his attorney in using a Will instead of Revocable Living Trust, we still do not know the whole picture. Nevertheless, here are five lessons for everyone:
- Keep It Private. Almost everyone, regardless of their amount of wealth, should use a Revocable Living Trust as their primary estate planning document, to avoid the nightmare of probate caused by using a Will to transfer your assets upon death.
- Estate Taxes Are Just One Consideration. Mr. Gandolfini is being criticized for subjecting his estate to the huge burden of Federal Estate tax. Even if that turns out to be true, it is possible that Mr. Gandolfini was told about the tax bill but was willing to pay the tax so long as his goals were met in the will. Taxes should always be considered, but avoiding or minimizing Estate Taxes shouldn't necessarily drive your estate planning wishes.
- Consider Tax Efficient Gifts and Transfers. We don't know how many tax-efficient steps Mr. Gandolfini took, but surely he took some. For example, his teenage son, mentioned in the will, apparently is going to receive $7M in life insurance proceeds via a separate life insurance trust. Irrevocable Life Insurance Trusts (ILITs) are highly tax efficient ways to transfer wealth. No estate tax there.
- Consider Children's Ages Carefully. Many who have young children think they will be ready to receive and manage assets at age 21. Or 25. Or 30. Often, we revise our expectations over time as our kids mature (or don't). Be careful with this one. Mr. Gandolfini's Will calls for his baby daughter to receive significant assets at 21 - probably not the wisest move.
- Foreign Property is Different. Mr. Gandolfini's Will says his Italian property goes to his son and daughter when she turns 25. But inheritance laws in Italy may override this, injecting a share for his spouse. And upkeep of real estate can be brutal, so getting the overseas property with no cash can doom the goal of keeping it in the family.
Here at The Fairfax Estate Planning Law Firm of Evan H. Farr, P.C., we advise that our clients should almost always use a Living Trust as their primary Estate Planning tool, in order to protect assets at death from having to go through the nightmare probate. A Will allows you to direct who receives your assets (i.e., who are your beneficiaries) and who manages your estate (i.e., who acts as your executor), but a Will does NOT protect your assets from becoming public knowledge and going through probate. Only a properly funded Living Trust protects your assets from going through the "nightmare of probate."
Did you know that 66 percent of adults don't have an Estate Plan? The catastrophic tax liabilities in this high-profile case serve as a reminder that putting off estate planning can hurt your loves one left behind. Whether you have a $70 million estate or a $70 thousand dollar estate, proper estate planning is critical. And since the future is so unpredictable, it's never too early to get started with your planning. Call 703-691-1888 to make an appointment for a no-cost consultation at The Fairfax Estate Planning Law Firm of Evan H. Farr, P.C. today.
|
|
| Find Us |
|
|
|
Upcoming Events |
All events are at The Law Firm of Evan H. Farr, P.C., 10640 Main Street, Suite 200, Fairfax, VA 22030. RSVP today! We hope to see you there.
Was this newsletter forwarded to you? Subscribe today to keep up with elder law news, "Ask the Expert" topics, and articles of interest for seniors.
These headlines are recent posts from our
|
|
Mailing Address |
|
10640 Main Street
Suite 200
Fairfax, VA 22030 | |
