Monday, August 19, 2013

Lessons from Tony Soprano’s Estate Plan

James GandolfiniJames Gandolfini, a/k/a Tony Soprano, died unexpectedly at the age of 51.  Not that we should all take money management lessons from a TV mobster, nor should we take guidance on estate planning from him, but the death of a high profile actor at such a young age provides an opportunity to review the good and the bad decisions his estate plan made.

First, here is a copy of his will.  Mistake #1:  If you are a famous person, you should (or your lawyer should insist) that you keep your estate plan PRIVATE.  Any will that has to be probated is public.  Most of the time no one will care, but if you are Tony Soprano, someone will care.  In fact, I am nowhere near the first person to write about this.  If his estate plan had been private, no one could write about it.  His estate plan would have been private if he had used a revocable living trust to hold his assets.  Trusts are not public documents.  Even if they become an issue for dispute in court, often the document itself is a non-public filing.  Now we all know he is giving his assistant $200,000.  

The second reason James Gandolfini’s estate plan is notable is because it appears to be very tax inefficient.  Newspapers and magazines have been making a huge deal about this calling his estate plan a horrible mistake, a tax disaster.  His plan gives about 80% of his estate, including a property in Italy, to taxable beneficiaries (not a spouse or charity).  This triggers estate tax on all but $5,000,000 at a rate of 40% or more.  The New York Daily News estimates that this amounts to about $30,000,000 in tax on his approximately $70,000,000 estate.

Again, the media labels this a horrible mistake, a disaster.  Is it possible that James only provided 20% to his wife (thereby making that 20% not taxable) because they agreed to do that in a premarital agreement, he had another trust for her benefit, or he used the 2012 gifting craziness to give her a number of assets already?  Or, maybe, he WANTED to give the rest of it to his kids and relatives, and didn't care about the taxes.  Novel idea?  It is true, however, that most people care about the taxes.  A few relatively simple estate planning techniques may accomplish the same goals but save significant taxes.  I certainly hope he was informed of the consequences of the design of his plan.

The third lesson from this estate plan is how (not) to structure gifts to your children.  His will provides for his children significantly, and early.  Many children, even children of celebrities, are not ready to manage a pile of money at 21.  I can appreciate his desire to keep things simple, but providing more money to your young daughter than you do your wife—seems like a bad idea?

The final lesson is in the disposition of his Italian property.  James gave his children the property in Italy.  Italy and many foreign countries have limitations on who can own property there, and who may be taxed as a beneficiary of that property (inheritance tax).  It is also possible that a significant capital gains tax occurs when the property is transferred to certain individuals.  Our system is an estate tax borne by the deceased’s estate, not by the beneficiaries receiving the property (unless the document requires that).  As a result, it can be possible that the estate would pay estate taxes in the U.S. for the property, and the recipient could pay further taxes to the country the property is located in.  Many countries in Europe, like Italy, have a treaty with the make sure there are less situations of double tax, but it is important to take careful consideration with properties abroad.

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