By: The American Academy of Estate Planning Attorneys
When Sopranos star James Gandolfini died unexpectedly at the young age of 51, his estate plan sparked a media firestorm. Experts have scrutinized and criticized his plan, and news reports have covered its details. What led to this flurry of attention? The fact that he left behind a Will, which made his estate planning choices public record.
What can we learn from James Gandolfini’s Will? Here are three lessons you can apply as you consider your estate planning options.
1. Your Privacy (And Your Family’s): No one would be debating the details of Mr. Gandolfini’s estate planning choices if he had not used a Will. Before it can take effect, a Will has to be filed in probate court. At this point, the Will becomes a matter of public record, meaning anyone can access it. A Will guaranteed that Mr. Gandolfini’s estate planning choices were available to reporters, estate planning experts, and the general public to scrutinize.
For the rest of us, filing a Will in probate court means that our personal and financial affairs are made available to jealous relatives, nosy neighbors, and even con artists and financial predators. These are the last things grieving family members should have to deal with.
How can you keep your estate plan private? You can use a Trust. Unlike Wills, Trusts do not have to go through probate. With a Trust, you can distribute your property the way you see fit, maintain flexibility and control over your property during your lifetime, and keep your estate plan away from prying eyes.
2. Don’t Forget Taxes: Rather than leaving all of his assets to his wife, Mr. Gandolfini left much of his property to his two sisters and his infant daughter, which prompted some experts to label his Will an “estate tax disaster.”
Here’s why: when you leave assets in excess of the current (2013) $5.25 million estate tax exclusion to your spouse (or to charity), the money is tax exempt. When you leave these assets to other beneficiaries, they are subject to the estate tax. In Mr. Gandolfini’s case, the bulk of his estate went to his daughter and his two sisters and will be taxed at a rate of 40%.
Mr. Gandolfini could have left his assets to his wife in a QTIP trust with the assets distributed to his children tax-free at his wife’s death. However, it doesn’t appear that this is what he wanted to do. He wanted to leave significant assets to his sisters, and there is no way to leave millions of dollars to your siblings without paying estate taxes.
There is one thing Mr. Gandolfini could have done to reduce the overall tax burden on his assets. He could have left his property to his sisters in a Trust, rather than outright. With an outright bequest, the assets are taxed twice: now and when his sisters die.
Had he left his sisters’ inheritances to them in a Trust, the property would be taxed now, but it would not be included in their estates at their deaths. Hence, there would be no additional estate taxes at the sisters’ later deaths. A Trust could also have been structured to give his sisters maximum control over their inheritances while offering protection from creditors.
You may not have millions of dollars to leave to your beneficiaries, but you should discuss Trust planning with your estate planning attorney. Trusts can offer tax advantages, creditor and divorce protection, help to avoid probate and related expenses, and a wealth of other benefits for your loved ones.
3. Know Your Children: Mr. Gandolfini left 20% of his residual estate to his baby daughter Liliana. He also left a $7 million life insurance policy to his 14-year-old son Michael. These assets will be held in a Trust for the children until they turn 21.
Michael and Liliana may grow to be exceptionally mature and fiscally savvy young adults, but think back to when you were 21 years old. What would you have done with unfettered access to millions of dollars? Would you want your children or grandchildren to have control over large sums of money at such a young age?
Children’s inheritances don’t have to be turned over to them when they reach 18 or 21. You can design a Trust that provides for funds to be released incrementally as a child progresses into adulthood or as a child attains educational or other goals. Alternatively, you can design a Trust that protects a child’s inheritance for life. As you create your estate plan, think carefully about your children’s personalities, their level of maturity, and their relationship with money. Then work with your estate planning attorney to establish a Trust that meets your children’s needs.
You don’t have to be a multi-millionaire to benefit from a well-thought-out estate plan. An experienced estate planning attorney can help you make the most of your assets and establish a plan that protects your loved ones long after you are gone.