There has been a lot of discussion about James Gandolfini’s will and his estate planning – or perhaps lack of estate planning might be more accurate.  A Forbes article a couple of days ago outlines the biggest shortcomings of Gandolfini’s estate planning.

While we don’t know the total picture of Mr. Gandolfini’s estate planning, we do know he had a last will and testament.  All wills must go through the probate process.  That’s how we know so much about Gandolfini’s lack of (or incompetent) estate planning. The first thing we know from the will that was filed in probate is that Gandolfini’s estate will pay tens of millions of dollars in estate taxes to the IRS – most of which could have been avoided by proper estate tax planning.

We also know that much of his estate will be distributed outright and free of trust, which suggests that Mr. Gandolfini’s family members must be more adroit with financial affairs than most people who inherit millions of dollars – otherwise, Mr. Gandolfini might have used some protective trusts to help his beneficiaries manage their new found wealth, and protect the wealth from predators, creditors and the beneficiaries’ own conduct.  You can review Gandolfini’s will here.

There are at least 6 lessons that can be gained from analyzing the Gandolfini will, as it pointed out in the Forbes article.

1. Keep it private.  Just like all other wills, the Gandolfini will is subject to public scrutiny because it is in probate.  With a will, you cannot avoid probate.  With probate, you cannot keep it private.  There is no reason to voluntarily open to the public your private financial world, family laundry, personal animosities, and charitable or political affiliations.  You can avoid such publicity.

2.  Use a revocable living trust.  You keep your affairs private through the use of a properly funded revocable living trust.  The revocable living trust allows you to accomplish everything a will can accomplish, but with many positive attributes not achievable with the use of a will.  A revocable living trust allows you to avoid probate – if it is properly funded (a topic for another day).  Avoiding probate means avoiding publicity.  Had Mr. Gandolfini established a revocable living trust, and properly funded it with his assets, we would not be discussing Mr. Gandolfini’s affairs, because there would be no probate, and therefore no will in the public record to give rise to this discussion.  The revocable living trust has other benefits as well, not the least of which is the ability to provide for the management of your assets and you, in the event of your incapacity.

3.  Engage in tax planning appropriate for your desires.  Mr. Gandolfini’s estate will incur tens of millions in estate taxes.  Proper estate tax planning could have reduced that number to a very small one.  Based on the language of the will, Mr. Gandolfini wanted to leave substantial assets to his sister.  Transfers at death to someone other than a spouse may require that substantial taxes be paid.  However, there are numerous estate planning options that could have been taken that would have resulted in the same or even greater benefits to his sister, without the huge estate tax burden his estate is facing.

4.  Using tax efficient transfers and gifts. Mr. Gandolfini did use at least one very tax efficient transfer.  He established an irrevocable life insurance trust (ILIT) for his son. Through that ILIT, his son received $7 million of life insurance totally estate and income tax free.  The general understanding about life insurance is that it is “tax free.”  Indeed, in most instances life insurance is income tax free. However, if you own a life insurance policy on your own life at the time of your death, the death benefit is included in your estate for estate tax purposes, and is thus taxed at a 45% rate (under current law). To remove the life insurance proceeds from your estate for estate tax purposes, you most divest yourself of ownership of the policy so that you don’t own it at the time of your death.  The most effective way to accomplish that is through an ILIT.  An ILIT allows you to avoid estate tax on the life insurance proceeds, provide for the management of the funds after your death, and offers the opportunity to protect your beneficiaries from creditors and predators;

5.  Consider the age of your beneficiaries.  Gandolfini’s will provides that substantial assets be distributed to his daughter at age 21.  In my experience over the past 35 years of helping clients with their estate planning issues, it is quite rare to find a 21 year old who is mature and experienced enough to handle millions of dollars all at once.  The use of protective trusts for young beneficiaries will help ensure that the benefits you seek to provide for your loved ones will in fact be a benefit to them rather than a detrimental burden on their lives.  Similarly, if your beneficiaries are elderly, you may want to consider a special needs trusts or other planning to ensure that your beneficiary derives the benefits of your gift, rather than a nursing home or assisted living facility.

6.  Foreign property.  Gandolfini’s will also provides that his real property located in Italy is to be transferred to his children at age 21.  Each country has it’s own rules for distribution of assets at death.  In the U.S. each state allows a person to give his or her property to whomever they want (with some minor restrictions), in whatever manner they want.  In the U.S., a child or spouse (with certain limitations) can be disinherited. But, U.S. law does not apply in foreign countries, especially with regard to real property.  European and middle eastern countries in particular have very precise rules of inheritance that cannot be controlled or changed by wills signed by US citizens. Anyone owning real property outside the US should consult with counsel in the country where the real property is located to determine the legal framework for transferring the real property at death.  The same may be true for tangible and intangible property in many countries.

Proper estate planning involves much more than merely signing a will. Though you can do it yourself, you likely will be shortchanging yourself, your family, and your beneficiaries. To ensure you have the best planning to accomplish your objectives, it’s well worth the time and effort to seek out experienced estate planning counsel to assist you with the planning.

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