“You woke up this morning and got yourself a gun, Mama always said you’d be the chosen one.” Am I the only who sorely misses seeing the Soprano’s on an HBO Sunday night? No matter what happened during the weekend, I could always count on a gripping hour of Drama and seeing the slicked back hair of Paulie Walnuts. With the recent death of TV and movie superstar James Gandolfini, he will be sadly missed for some of his great work as Tony Soprano. At times like this, there are always lessons to be learned. Gandolfini did a few smart things with his estate, but he made some major mistakes that you can learn from so you don’t get capped down the road.
- Not making use of the unlimited marital deduction– Gandolfini left his $70 million dollars estate to his two sisters, his wife, and his daughter. His son was the beneficiary of a life insurance policy not including in his estate. Although the optimal estate planning wouldn’t be to outright leave everything to your wife because he or she could face estate planning taxes down the road at the second death, by not using the unlimited marital deduction, it could cost the estate upwards of $30 million dollars of estate tax. Even though his current wife was the natural born mother of his son, there are smarter strategies he could have deployed.
- Update your will often– Gandolfini’s most recent update of his last will and testament was on December 19, 2012. The will was updated recently after the birth of his daughter Liliana. This allowed Mr. Gandolfini to make sure that Liliana was included in the estate as his only other child was his son Michael. Without having made this important update, it’s quite possible that the Liliana would have been left out of the estate.
- Incorrectly funding your trusts– Mr. Gandolfini had actually set up something called an irrevocable life insurance trust, which is generally a trust that will buy an insurance policy to provide beneficiaries and heirs with instant liquidity to pay estate taxes down the road. These policies can be received income tax free and estate tax free due to the nature of the trust. The wise thing that Gandolfini did was fund the trust with a 7 million dollar policy so he was on the right track. However, his overall estate tax is going to be a lot larger than that number. Had he updated the policies and the amounts, the tax could have been paid by life insurance proceeds and the beneficiaries retain the wealth that he worked very hard to build up over his career.
- Have co-trustees– When you are dealing with minor children, you need to make sure you update your custodian designation. If you manage to build up wealth over your lifetime, you may need to set up trusts for your kids that will spring at death through your will. It’s important that when you have different parties involved (several kids from different marriages, multiple wives, family members) to appoint more than one trustee for your estate. In Gandolfini’s estate, he appointed his current wife, his sister, and a third party. This gives an excellent check and balance system for oversight of the funds.
Planning an estate can result in some difficult choices and tough conversations. Every time I see a public figure like this make mistakes, there are a least a dozen more stories I hear from the average families who just didn’t understand the rules before it was too late. Perhaps it’s time for you to have a family style Soprano dinner sometime soon and figure out just what type of estate plan makes sense for you.
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Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS® Co-CEO and Founder oXYGen Financial, Inc. Securities and Investment Advisory Services offered through NFP Advisor Services, LLC (NFPAS), Member FINRA/SIPC. Oxygen Financial is not affiliated with NFPAS.