In my career, every day I hear stories about people that failed to engage in proper estate planning prior to death. As I see it every day, the most common issue with why people fail to get their estate plan in place is procrastination, another is a sense that they will have time to get to that later (a feeling of not knowing their own mortality), and another common reason has to do with not wanting to incur an unknown amount of legal fees. Whatever the reason may be, each and every person owes it to their family to put the gift in place of comprehensive estate planning. All of this reminds me of the death of Sopranos star, James Gandolfini.
I would say everyone was taken by surprise when James Gandolfini suddenly and unexpectedly passed away. However, what was even more surprising was the lack of an estate planning strategy that the former Sorpranos star at in place at the time of his death.
James Gandolfini died with a net worth of approximately $70 million. In his estate plan, James Gandolfini left 60% to his sisters, 20% to his wife, and 20% to his daughter. However, the manner in which this estate plan was established, resulted in $30 million in taxes being due to the IRS within 9 months of Mr. Gandolfini’s death.
There is a simple reason for this. At the federal level, there is a Federal Estate and Gift Tax that taxes the transfer of wealth above $5.45 million with a top tax rate of 55%. However, there is an unlimited exemption to gifts that you leave a spouse at your death. Essentially, Gandolfini’s estate plan failed to take advantage of the unlimited marital exemption and exposed his estate to unnecessary estate taxes.
We can all speculate on why it was set up in this manner. However, the likely reason was that Gandolfini wanted to be fair to his children and his second wife. Gandolfini’s son, Michael, who was with him in Italy at the time of his death, was the beneficiary of a life insurance policy but was not included in his estate plan. However, Gandolfini’s sisters, wife, and two daughters were included.
The problem is that with Gandolfini attempting to be fair to everyone at his death, he ensured that a high percentage of his estate would be going to the IRS in the form of taxes that otherwise wouldn’t have been had he planned appropriately.
A joint marital trust could have been used in this case to take advantage of the unlimited marital exemption at Gandolfini’s death (resulting in $0 estate taxes being due) and allowing the remainder of his estate to go to his children and chosen heirs after the surviving spouse’s death. Furthermore, he could have set up his estate plan in such a manner that would have protected his heirs inheritance in the event of his spouse remarrying after his death.
The morale of the story here is not only to make sure not to put off estate planning until it’s too late, but to make sure that your estate plan is always up to date and takes into account your specific financial situation.
If you have more questions about estate planning, please explore the rest of our website articles at www.danperrylaw.com, download one of our Free Legal Reports, Request a copy of Dan's Book Estate Planning for Tennessee Families: How to Keep 100% of Your Estate in the Family and Out of the Government. If you are ready to schedule an Estate Planning and Wealth Transfer Strategy Session with our office, please contact us at 615-472-2482. As always, we are here to help!
Daniel A. Perry
Fidelis Law, PLLC