When he was the lead mafia boss in the Soprano’s, the IRS would not be a threat to James Gandolfini; as he’d simply bribe a Federal agent, or have “his people take care of it.” But here in the Wild world of reality, only attentive estate planning keeps the IRS monsters at bay. And in this case, the only “hit” that’s taking place, is that against Gandolfini’s estate.
Gandolfini died with an estate that is currently estimated to be $70 million. While he has been a very successful man, his use of poor estate planning has resulted in a lot of grief for both his legacy & loved ones. Although he devised his property through a will to the beneficiaries of his choosing, the IRS has claimed the biggest share, weighing in at about $30 million. Furthermore, his entire will is now a public record that anyone can view, because it was subject to probate (where the court determines the validity of a will).
This estate planning (or lack thereof) catastrophe demonstrates two very critical points in strategic estate planning: (1) avoiding taxes, & (2) creating a private and smooth distribution of property.
In terms of tax, married couples have an incredible safeguard, called the martial deduction. One of Gandolfini’s biggest mistakes was devising only 20% of his estate to his wife. Due to the unlimited marital deduction, anything you transfer to your spouse is not subject to transfer taxes, and therefore that money goes free & clear of estate taxes upon the death of the transferor (Gandolfini). When you have such a large estate, it is often advisable to include the amount in your gross estate that covers the full applicable exclusion amount (the transfer tax exemption that each individual receives upon death), which is currently at $5,250,000. Then you can transfer the rest to your spouse, and it goes transfer tax free for the time being.
So why did he fail to take advantage of a tax-free transfer? This often happens in cases where there is a child that is from a previous marriage, or a similar complicated family situation. Gandolfini has a son from a previous marriage, and therefore possibly did not want to devise all his assets to his wife, in efforts to ensure his son would be provided for. While this is a valid concern, there are estate planning strategies that can be implemented to obtain these goals, while still safeguarding your assets from excessive taxes. A marital trust is often used in theses situations. The instrument provides that the income from the trust property will be paid to the spouse for life, and then upon the spouse’s death, to the children. This could have dramatically shrunk the IRS bill that will come due in only 9 months.
On the second point, whenever you devise all of your property directly through a will, it will go through probate before the property is distributed to the beneficiaries. The problem with this is that the will becomes public record, and it’s contents are exposed for the whole world to see. This is why it is desirable to use a “pour-over will” that filters all of your assets into a trust. By doing so, you avoid the costs and grief associated with probate, and preserve privacy for yourself, and loved ones.
For more information on successful Florida estate planning and asset protection techniques, please contact the South Florida law firm of Wild Felice & Partners, P.A. at 954-944-2855 to schedule your free consultation.
It’s a Wild world. Are you protected?SM