Sopranos Star’s Will Creates Windfall for IRS

James Gandolfini, the actor best known for his years as Mob boss, Tony Soprano, on HBO’s The Sopranos, died of a massive heart attack at age 51 in June.  The actor’s unexpected death leaves estate planners wondering if Mr. Gandolfini had any legal advice when making his Last Will and Testament, as the largest stakeholder of his estate will be the U.S. Government.

Gandolfini’s Will leaves 80% of his estate to be split equally among his two sisters and his infant daughter.  The remaining 20% is payable to his wife. Though a formal inventory is not due to be filed in the New York Courts until later this year, most estimate Gandolfini’s estate to be worth approximately $70 million.  That sounds like everyone gets a nice piece of the pie, but the government gets first bite.  The New York and U.S. government’s combined share is up to 55%, meaning the IRS could get approximately $25 million.  While Gandolfini’s wife’s 20% share is not subject to such taxes, her portion is determined after taxes are paid, leaving her with about $9,000,000.

The IRS’ share is to be paid in cash, and it is due within 9 months of death.  Gandolfini, like many wealthy celebrities, has mostly illiquid assets.  So, his family will likely be forced to sell certain assets to meet this tax liability.

The lesson here is that tax planning could have saved the Gandolfini family millions.  Assets pass tax free to spouses, so there were ample planning opportunities for a marital trust.  Gandolfini could have taken advantage of gifting strategies during his lifetime to reduce the size of his taxable estate.  A Revocable Trust could have been created to avoid the public knowing these details of his estate plan.  And, the property left to his infant daughter could have been placed in trust so she does not receive her entire inheritance in one lump sum upon attaining age 21.

 Alas, we are only left to wonder if this estate plan meets Gandolfini’s wishes.  With such a disproportionate amount of his estate being distributed to the IRS versus his wife and two children, it leaves an unsettling feeling that he just didn’t get the right plan in place before his untimely death.

For more information regarding estate planning, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Last Will and Testament

A Will is a basic estate planning document that provides for the distribution and disposition of property and personal assets of an individual after death.  A Will becomes effective upon death; therefore, it may be changed at any time prior to death.  It should also be periodically reviewed to be sure it applies to the maker’s current personal and family situation.  A Will may contain general or specific provisions regarding the care and distribution of property, the distribution of disclaimed property, recommendations for guardians of minor children, the appointment of executors to administer the Will and express desires and guidance regarding the administration of the estate.  Finally, the Will may establish trusts for the benefit of loved ones or charities and trustees to manage these trusts.

The design of our preferred Will for single-marriage clients creates two trusts at the death of the first spouse:  a Marital Trust and a Credit Shelter Trust.   At the death of the first spouse, the Credit Shelter Trust is funded with enough assets to capture the first-to-die spouse’s federal estate tax exclusion amount, and the remaining assets, if any, fund the Marital Trust.

The Marital Trust is funded with any amounts over the exclusion amount because the (100%) Marital Deduction allows an unlimited amount of assets to be transferred to a spouse upon death tax-free.  This structure provides for the benefit of both estate tax exclusions:  initially the federally-provided exclusion, whatever that may be in the year of death, and the marital exclusion for all assets above that amount.  Thus, no estate taxes are due at the death of the first spouse.

While it seems complicated, please keep in mind that the surviving spouse may have control over all of the assets of each Trust, as the Trustee of the Trusts, and would also be the primary beneficiary of the Trusts.

In the event one or both spouses are not U.S. Citizens, additional language must be added to the Will to ensure the couple receives the full benefits of the U.S. estate tax laws.

When children inherit property, we prefer a descendants’ trust created by the Will at the death of the second spouse.  This allows the assets to pass, in trust, to children and future descendants.  This format protects the assets from future estate taxes, creditor issues, divorce or other claims against the descendants.  The descendant, just like the surviving spouse above, upon reaching a certain age, may be the trustee of their trust and will be the primary beneficiary of his/her trust.

 

For more information regarding estate planning, business law or tax controversy and compliance, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.

 

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.  The information contained herein is provided “as is” for general guidance on matters of interest only.  Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services.  Before making any decision or taking any action, you should consult a competent professional advisor.

Governor signs Senate Bill 461

Governor Perdue signed Senate Bill 461 on May 28, 2010, making the provisions thereof retroactive to January 1, 2010.  As discussed, the law allows married Georgia residents to utilize the entire step up in basis provided under the current estate tax laws without modification to current documents.

If you have any questions about this law or how it affects your estate plan, please give us a call.

Federal Estate Tax Laws that may affect your Will in a Second Marriage

As a result of the 2001 tax legislation, the Federal Estate Tax has been repealed for 2010.  While Congress is still debating the issue, as it stands now if a person were to die in 2010 there might be no federal estate tax on their estate.

There could be an issue with providing assets for some spouses under a Will, particularly if it is a second marriage.  Typically, a Will is drafted utilizing a formula to maximize the federal estate tax allowance that is in existence at the time of your death.  While no one in the legal and accounting communities anticipated that Congress would actually allow 2010 to arrive with a total repeal of the federal estate tax law, we are currently faced with that issue.  There is talk that if Congress reinstates the federal estate tax they will make it retroactive back to January 1, 2010.  However, some may challenge this as unconstitutional, and we do not know if they would be successful.

Therefore, under the current law, if the typical formula is used in your Will to maximize federal estate tax allowances, all of your assets will go to the Family Trust, also known as the Credit Shelter Trust.  What this means is that if your spouse is not named as a beneficiary under the Family Trust, they will not get any benefit from your estate as the Marital Trust created for the benefit of the spouse will not receive any assets from your estate.

In some instances in second marriages, a person’s Will provides for spouse under a Marital Trust and for children from a previous marriage under the Family Trust.  Therefore, under the current tax law this is detrimental to the surviving spouse, as all assets will go to the children from the previous marriage.  If this is not your intent, it is advisable that you contact an attorney to execute a short Codicil to your Will to assure assets will pass to a spouse in a second marriage.

Of course, if the federal estate tax is reinstated and made retroactive, there is no issue.  However, if it is not retroactive, if you pass away during a “total repeal” period (2010), your spouse will lose out on the benefits of your estate.