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James Gandolfini's $30 Million Estate Tax Mistake

Tony Soprano
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In "The Sopranos," the IRS didn't stand a chance against Mafia boss Tony Soprano. But thanks to poor planning, the IRS will be the biggest beneficiary of actor James Gandolfini's estate.

Gandolfini died with an estate worth an estimated $70 million. But in what estate lawyer William Zabel referred to as a "catastrophe" in an interview with the New York Daily News, Gandolfini's will left about 80 percent of his estate unprotected against estate taxes, with rates that will add up to about 55 percent when you consider both the federal and state portions.

What's worse, some well-established estate planning techniques could easily have avoided much of that bill while still achieving most of what Gandolfini was trying to accomplish.

What the Will Said

You can read Gandolfini's will for yourself, but on the whole, it has fairly simple provisions.

After giving $1.6 million to various friends and relatives and making provisions for his personal property and his house and land in Italy, Gandolfini split the remainder of his estate among four people -- 30 percent each to his two sisters, 20 percent to his wife, and 20 percent to his daughter. His son received the proceeds of a life insurance policy that isn't subject to estate tax.

As ordinary as those provisions might sound, Gandolfini's will represents a missed opportunity in estate planning terms. By leaving only 20 percent of his estate to his wife, Gandolfini missed out on what could have been an unlimited deduction for estate tax purposes for gifts made to a surviving spouse.

How to Handle Complex Family Situations

Of course, one complication is that Gandolfini's surviving spouse, Deborah Lin, isn't the mother of his son, Michael. Often in situations involving stepparents and children of previous marriages, parents are reluctant to leave all their money to a surviving spouse, as they want to ensure that their children won't have to rely on their stepparent to provide for them.

However, even in cases involving children of previous marriages, the use of marital trusts can usually take advantage of the marital deduction while still ensuring that children will eventually receive the bulk of the estate.

A typical marital trust will provide for income from trust property to be paid to the spouse, and for the assets that remain after the surviving spouse dies to go to the children or other desired heirs.

You have to be careful in drafting the marital trust so that it qualifies for the marital deduction while still providing protection for your kids, but proper planning can reach a beneficial result that could have cut tens of millions of dollars off Gandolfini's estate-tax bill.

Don't Make a Celebrity Mistake

Gandolfini's estate-planning errors are far from the only tax mistake among celebrities. Some are basic missteps, like Wesley Snipes having failed to file income tax returns and Nicolas Cage having an unpaid seven-figure tax bill outstanding. Lauryn Hill failed to pay taxes for years, and on Monday began serving a three-month sentence for tax evasion.

Moreover, Gandolfini at least had a will. Many celebs who died unexpectedly, including Jimi Hendrix, Amy Winehouse, and Barry White, didn't have valid wills at all, an issue which can raise a host of other complications and unintended results.

So in reviewing your own estate-planning situation, be sure you've taken care of the following issues:
  • Make sure you have a will. Doing so is the best way not only to make sure the right people get your property after your death but also to name someone to take care of minor children in your absence. Without a will, long court battles can ensue, and that will not only create emotional stress but also sap financial strength at a most difficult time.
  • There are a number of other vital documents to have. A living will lets you make your wishes known about life-preserving treatment, while a health-care power-of-attorney will let a loved one act more broadly on your behalf when you're unable to make your own decisions about medical treatment. Similarly, a durable power of attorney will let someone take financial action on your behalf if you're incapacitated, saving a huge amount of complications.
  • Finally, financial planning can be as simple or as complex as you choose to make it. With the federal estate tax exemption currently at $5.25 million, few people have to worry about tax considerations, although some states have estate taxes that kick in at levels as low as $675,000. Make sure to coordinate your will's provisions with your investments, life insurance, and other financial planning to ensure a smooth transition if something happens to you.
No one likes to contemplate their own death. But the expensive lesson that the IRS is about to teach the Gandolfini family is one that you don't have to learn the hard way, as long as you take some easy steps now to avoid a big IRS bill later.

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Robert Connor

Live and learn.....Me and the girl could live our lives out nicely on mistake!

December 13 2013 at 5:31 PM Report abuse rate up rate down Reply
Samuel Adams

So - get married, die and leave your money to your spouse and it's tax free?

Gee, and straight people wonder why gay people think it's unfair they can't get married.

August 04 2013 at 5:02 PM Report abuse rate up rate down Reply
1 reply to Samuel Adams's comment
Patrick Donahoe

It gets taxed when the second to die

December 07 2015 at 4:24 PM Report abuse rate up rate down Reply
Bob Mulligan

ALL of Gandolfini's money was TAXED in the first place. How can ANYONE with two fu ck ing brain cells think the government has a right to come in & STEAL HALF of the money a person has managed to save AFTER TAXES? HE EARNED that money, it is HIS RESPONSIBILITY to take care of his family according to our government system so how is it their right to STEAL HIS MONEY from his kids?

August 01 2013 at 10:23 PM Report abuse rate up rate down Reply

After allowing for deductions and credits, an estimated 3,270 estates will owe tax. Roughly 90 percent of these taxable estates will come from the top ten percent of income earners and nearly half will come from the top one percent alone. In other words nobody posting on this blog has to worry about paying estate taxes. Starting this year the first 5 million dollars of an estate passes tax free. Anything above 5 million is taxed at 35%.

This article assumes that Gandolfini made a mistake, because he didn't take measures to avoid taxes. However, it is more likely that he did it by design. The only way for him to exempt assets above 5 million would have been to leave those assets to his spouse for the remainder of her life. Consequently, his children and siblings would have had to wait for her to die before getting their share of what was left. There is no guarantee that they would outlive the spouse or that the assets would be managed well over time so that they would get as much later as he could leave them now, even after taxes. By doing it the way he did it he avoided a whole lot of unnecessary strife in the family. He did it the Soprano way--everybody eats, even Uncle Sam!.

July 25 2013 at 2:54 PM Report abuse rate up rate down Reply

On the other hand, We The People thank James Gandolfini profoundly for the new parks and "potholes fixed" his money will help fund. He is a product of public schooling. His family will still have faaaar more than enough after taxes -- so we appreciate what he is "giving back".

If they had gotten it all it would benefit society not one iota.

July 19 2013 at 7:01 PM Report abuse rate up rate down Reply
1 reply to wmk3rd's comment
Tony Jack

wmk3rd you are a gullible tool if you think majority of his taxes is going to be used to help society. More likely most of it will be either wasted or go in some politician / corrupt official's pocket or pet project, just like a lot of tax revenue is now. Also his success is not due to public schooling, so that was pointless to bring up. The taxes James paid throughout his life on his income is way more than anything he cost his school. So he gave back plenty enough already. This estate tax instead is just a last grab steal of what James worked for to make and save for his family and already paid taxes on.

How do you know it would not benefit society one iota? That is pretty much impossible unless the family put the money under the mattress. If his family invest or even just buys stuff it helps society by going into the economy and creating jobs. Of course though you are clueless about that.

July 21 2013 at 10:44 AM Report abuse rate up rate down Reply
1 reply to Tony Jack's comment
Fatso Bastarde

Holy crap! Talk about clueless. Travel a little, compare low to no income tax countries to countries that have a high tax. Why should his family get his money? They didn't earn it. Let them earn their own way, isn't that what America is supposed to be about, not creating wealthy aristocricies. You wackos are destroying this country.

September 07 2013 at 9:32 PM Report abuse rate up rate down

What I dont get is how many times can the same dollar be taxed over and over again?

The money and assets that was left to others has ALREADY been taxed on as income over the years.

YOU have already PAID taxes on that money and it is and should be your right to leave it to anyone you wish without government penalties. Because that is what it is exactly.

July 16 2013 at 10:57 AM Report abuse +2 rate up rate down Reply

He left more than $5 million to his wife. When she dies, the excess will be taxed anyway, so his $30,000,000 "mistake" isn't $30 million in taxers, it's just $30 million that would have to be paid later rather than sooner, not to mention the stepson/sisters thing.

July 15 2013 at 4:06 PM Report abuse rate up rate down Reply

Seems the author of this article (and almost all of the commentators) resume that Mr. Gandolfini's attorney was incompetent and a poor draftsman. Has anyone considered that Mr. Gandolfini's will truly reflects his post-mortem intentions?

July 13 2013 at 12:49 AM Report abuse -1 rate up rate down Reply

Thou shall not steal.

The IRS hates competition.

July 10 2013 at 3:42 PM Report abuse +2 rate up rate down Reply

James Gandolfini could afford any lawyer he wanted. He picked the wrong guy. I feel bad that it happened, but it is not the IRS's fault. What does Obama have to do with it, for those including him in this? Did he invent the IRS? Obama Care? WTF does this have to do with that? This is a story of a mismanaged estate.

July 10 2013 at 1:15 PM Report abuse +3 rate up rate down Reply