Estate Planning By ES (18)
Actor James Gandolfini died recently at the age of 51.
That is far too young to leave this sweet old earth. This writer knows. At 51, this writer feels he’s in the prime of life. My heartfelt condolences to his wife and children.
Of interest to an estate planning attorney are four points made in news reports. First, Gandolfini may have left a $70 million dollar estate. Second, his estate plan consisted of a Will. Third, he appears to have engaged in no tax planning. Fourth, he left only 20 percent of his estate to his wife.
Published reports placed his estate AT $70 million, but Gandolfini’s estate attorney told The New York Times that figure is not accurate. The exact figure will likely remain a mystery. The public has no right to know the value of his estate. Estate tax returns are private. Certain asset classes escape probate. Gandolfini may well have had assets like retirement accounts and life insurance policies that are not covered by the will and its tax rules.
If you have a simple living trust, you had a more sophisticated estate plan than Mr. Gandolfini. The deceased had a Will and that’s all.
Mr. Gandolfini’s Will is subject to public disclosure. Indeed, you could read the entire Will online. Using a Revocable Living Trust as the primary estate planning tool in lieu of only a Will, avoids the publicity and costs of probate.
If Mr. Gandolfini had relied on a Revocable Trust, I wouldn’t be writing this piece. His estate plan would not have been subject to disclosure. The estate planning lesson here is that a Revocable Trust avoids the spotlight.
Those averse to paying taxes would call his estate plan (a Will) a “financial disaster.” Assuming a $70 million estate, roughly $30 million is going to pay estate tax. Planning for a $70 million estate to lower or even avoid estate tax is entirely feasible. The estate planner’s toolkit includes sales to defective trusts, gifts, grantor annuity trusts, freezing techniques, irrevocable life insurance trusts, and fractional ownership.
Gandolfini left just under 20 percent of his assets to his wife, with the rest going to his sisters and baby daughter.
Federal tax laws allow for unlimited tax free transfers to spouses. This is known as the unlimited marital deduction. Getting married and leaving your spouse everything is a crude, but effective tax avoidance technique. This is wryly known as the poor man’s estate plan. Gandolfini only took limited advantage of the unlimited marital deduction. Thus, about 80 percent of the assets covered by the will are subject to state and federal taxes that can reach a combined rate of 55 percent.
There’s more to life than taxes. Certainly, Gandolfini may have had priorities other than taxes. He may, for example, have wanted to make sure his daughter had her own inheritance so she would not be dependent on her mother. Conversely, the marriage might have been new, lacking the necessary trust in the new spouse.
Typically, married clients take full advantage of the marital deduction. But, that is not the case with blended families. Often, the spouse-parent will want to take care of children from previous relationships. In those cases, the surviving spouse’s inheritance may consist of lifetime income with the trust principal going to the decedent’s children on the surviving spouse’s death.
At any rate, using the “poor man’s estate plan” kicks the can down the road. Your spouse’s estate will owe estate taxes, if it is large enough. That’s where sophisticated planning pays off, planning which Mr. Gandolfini did not avail himself of.
Thanks for reading!
Edgar Saenz is a Los Angeles estate planning attorney. He is rated AV (Preeminent, Highest Possible Rating) by Martindale Hubbell. A graduate of Stanford Law School, he is a member of the Trust and Estates sections of numerous bar associations, including the State Bar of California. Edgar serves on a number of community boards. www.EdgarSaenz.com; Telephone: (310) 417-9900; Edgar@EdgarSaenz.com.