The news of the sudden death of James Gandolfini reeled the movie industry and public alike: while his Soprano’s persona was a rough and tough guy, his personal reputation was of a generous and kind individual to friends, fans and family alike. Stories of his negotiations for a raise included all the cast of the famous show, and he was known to bestow presents and bequests on many. All around, he was known as a “Hollywood good guy,” far from his “wise guy” persona.
So, early reports suggest that Gandolfini's estate was worth in the neighborhood of $70 million. (That's a lot of gabagool for the son of a bricklayer and high-school lunch lady!) He left 80% to his sisters, his 13-year-old son, and his nine-month-old daughter. Tax on those bequests could reach up to $30 million. He left the remaining 20%, after taxes, to his wife Deborah Lin. That means she could wind up with 20% of just $40 million, rather than 20% of $70 million she could have enjoyed with better planning. In case you're like Paulie Walnuts and math ain't your strong suit, that's a six million dollar mistake. No wonder New York estate-planning attorney William Zabel (author of The Rich Die Richer and You Can Too), called Gandolfini's will a "disaster" and a "catastrophe"!*
Shortly after a person’s death, the final tax return must be filed, and the final taxes paid, if applicable. Presently, there is an unlimited exemption between spouses, meaning that you can leave all you want to your beloved without any estate taxes levied upon transfer. Once you go beyond the spouse level however, the taxes may be substantial if your estate is above the 2013 year amount of $5,250,000. Before you shrug it off or put this in the category of winning the lottery, remember it also includes the value of all assets including your residence, and the death benefit amount of any life insurance proceeds, regardless of who the beneficiary is. The death benefit amount is tax free to the beneficiary, but includable in your estate for full calculation purposes. New York State is not so generous: they start their estate tax levy at a minimum of $1,000,000. It may be lower, but it’s still less in your family’s pocket. The use of transfer techniques such as gifting and the utilization of trusts may be very useful in lowering or eliminating the taxes paid at death, as well as having a better control over how and to whom the assets are transferred.
You may utilize a gifting program: in year 2013, you can gift to each person you desire up to $14,000 per year, or $28,000 with gift splitting, meaning you and your spouse make a gift each to the person or persons of your choosing, allowing a tax free transfer of dollars to those you love. Charitable contributions are always welcome, and will be happy to receive.
While the utilization of trusts may help to defray the taxes payable to state and Federal authorities, it also will help reduce the cost of probate. While it is not as dreaded as its reputation, the costs involved may also decrease the overall amount your beneficiaries will receive.
While your estate may not be $70, if you have a dollar, you have an estate. By not planning, you could end up paying Uncle Sam instead of your family, and especially your children. There is an unlimited passage of assets to your spouse, but beyond that, you may incur estate taxes if your estate is not properly planned. Do yourself, your family and those around you a favor: do your estate and financial planning before Uncle has your assets whacked!
*Thanks to Ron Mermer, CPA for his contribution to this article.
