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Estate Planning Gone Wrong: James Gandolfini’s Insufficient Estate Plan Cost Him Millions

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According to recent reports, James Gandolfini is the most recent in a long list of celebrities whose lack of proper planning has resulted in millions of dollars being paid to unintended recipients. In Gandolfini’s case, the IRS was the big winner.

At the time of his death, Gandolifini’s estate was worth approximately $70 million. The good news was that he attempted to put together an estate plan to include presumably the most important people in his life – his wife, children, and sisters. The bad news is that the basic plan he had did not take advantage of some well-established estate planning techniques that could have cut down his tax bill considerably.

The Will appeared to be drafted with very simple provisions leaving the first $1.6 million to various relatives and friends and making provisions for his personal property and land in Italy. The remainder was split as follows: 30% each to his two sisters, 20% to his current wife, and 20% to his daughter. His son received the proceeds of a life insurance policy. While this appears to have been a good plan, it exposes his estate to considerable tax liability because he didn’t take advantage of the unlimited marital deduction and other potential tax saving techniques.

In 2013, up to $5.25 million of an estate’s assets are exempt from federal taxation thanks to the American Taxpayer Relief Act passed earlier this year. For amounts in excess of the exemption level, which is adjusted annually for inflation, the top federal estate tax rate is 40 percent. Transfers from one spouse to the other, however, are typically tax-free.

Gandolfini, however, left approximately 80% of his estate to beneficiaries other than his spouse, causing that portion to be subject to federal estate tax.

His estate will also have to pay estate taxes to New York, his state of residence, which, unlike most states, does not mirror the federal exemption and exempts only the first $1 million from estate taxes.

One might argue that this was all by design, as Gandolfini may have chosen not to use his marital exemption because his current wife was not the mother of all of his children. There are, however, estate planning techniques that continue to minimize the tax bill while taking into account the fact that the decedent may have children from a previous relationship. Additionally, there are still other techniques that may have allowed him to pass assets to his other beneficiaries while minimizing the tax bill on that end too.

These types of mistakes are not only a threat to the extremely wealthy, as in this case, but they can also affect those of us with a much smaller estate as well. Lack of proper planning happens at all levels, making it extremely valuable for all families to work with an attorney who specializes in this practice area.