The Lawletter Vol 38 No 8
When Sopranos actor James Gandolfini died on June 19 of this year from a heart attack while he was on a vacation trip with his family in Italy, the media reported trivial facts surrounding his death, such as the details of his last meal and drinks. After a month or so had passed, however, attention turned to the details of Gandolfini's estate plan, with the focus on criticism of the plan. The plan became open to comment because Gandolfini had left a 17-page will, which, like every will, had to be filed in probate court, thereby making it public.
A general point of the criticism was that Gandolfini had left a $70 million probate estate, with only 20% of the bulk of the estate's value passing to his widow tax-free under the Internal Revenue Code's unlimited marital deduction and 80% passing to his sisters and his infant daughter. This plan resulted in a federal estate tax liability of approximately $30 million.
Criticism of the plan can itself be questioned: (1) The belief that the estate is worth $70 million is speculative; (2) it may well be that Gandolfini had other substantial assets that he placed in estate planning devices such as trusts and corporations (which might serve as a receptacle for future royalties received by the estate from the Sopranos); it is believed that there is a $7 million life insurance trust fund for Gandolfini's 13-year-old son from a prior marriage; and (3) it is unfair to criticize the disposition of an estate solely on the basis that the estate tax liability is not minimized: A decedent should not necessarily allow the objective of tax savings to have precedence over the disposition that he or she desires.
Yet some of the points of criticism made in regard to Gandolfini's estate plan are valid. First, there is the matter of privacy. If Gandolfini's assets had been placed in a revocable trust, with the trust spelling out the disposition of the assets at Gandolfini's death, the trust would not have been filed with the probate court and could have been kept private. A simple pour-over will could have been used to transfer assets not subject to the trust to the revocable trust.
Additionally, a tax calculation problem is created by the fact that the will, after bequeathing $1.6 million worth of assets to friends, used percentages to divide the estate among Gandolfini's widow, two sisters, and daughter. The problem is that because the 20% passing to the widow is not subject to federal estate tax, the calculation of the tax on the remaining 80% becomes complicated.
Also, the will does not include a trust to govern the disposition of the share of the estate that Gandolfini's daughter will receive. She is not to receive her share until age 21, but the prospect of having her receive a multimillion dollar sum outright at that age raises questions. A trust under the will could have protected her share by setting ages (such as 30, 35, and 40) at which she would receive percentages of the principal, with the trustee having discretion over the distribution of principal and income to her for her current needs.
Gandolfini also owned a home in Italy, and the will directed the ownership to be divided equally between his son and his daughter when the daughter turns 25. The will further expressed Gandolfini's wish that his children hold on to the home. According to an estate planning authority who deals with foreign properties, despite the devise in the will, Italian law
requires that the disposition of the property be one-half to the children and one-quarter to the surviving spouse, leaving Gandolfini the freedom to have disposed of only one-quarter of the property as he desired. The expert observed that an Italian lawyer should have been consulted, with the possibility that a separate Italian will might have been executed to cover the Italian property. Moreover, the will contained no provision establishing a fund for the upkeep of the Italian property. There is the possibility of friction as to the payment of the maintenance of property where it has been left to more than one party.
Gandolfini also owned a co-op in Manhattan, said to be worth $3.5 million. He put his son in a difficult position by giving him a right of first refusal to purchase the property at fair market value. Here is a 13-year-old boy, with a beneficial interest in $7 million in insurance proceeds, under pressure to have one-half of the value of the insurance trust fund spent in order to comply with his late father's wishes.
While the media may have become overexcited about the shortcomings of James Gandolfini's estate plan, there is clearly room for criticizing it.