The cost of being penny wise and pound foolish…
Actor James Gandolfini, who made the mobster Tony Soprano a household name, suddenly died in June of a heart attack at the age of 51. News quickly morphed from sadness over his untimely death to shock over his seemingly ill-conceived estate plan, namely, his will, which was so poorly drafted that up to 80% of his assets are rumored to be subject to a 43% estate tax.
Here’s irony for you: While Gandolfini’s iconic Soprano’s character spent his life running from the government, the actor who played him on TV made the government his primary beneficiary.
I don’t think he did it on purpose.
According to news reports, Gandolfini had an estate worth an estimated $70 million at the time of his death. Looking at the way he bequeathed his assets, Gandolfini’s estate will pay about $30 million in taxes, most of which will come from the shares he left his wife and newborn child, due in cash within nine months of Gandolfini’s death.
Yes, you read this correctly. Over $30 million owed in taxes on a $70 million estate. Due in nine months. Cash.
Many of you are probably asking, “With all of Gandolfini’s money, he could have bought the best estate planning money can buy. How could this have happened? How will his beneficiaries fund that kind of tax bill without an asset fire-sale or life insurance policies?” The answer is that they can’t. Estate planning experts believe his estate planning was ill-conceived at best and an utter disaster at worst.
So what went wrong?
If you go online and do some research on the Gandolfini will, you will find dozens of articles outlining what lessons can be learned from his advisors’ estate planning missteps. The articles outline tips for tax avoidance, the benefits of life insurance and trusts, the wisdom of consulting foreign counsel regarding property disposition in foreign countries, providing for real estate upkeep in wills, and the pitfalls of leaving huge, unequal chunks of money to young children from blended families. Digging deeper, you may even find the one article where Gandolfini’s estate lawyer himself denies pretty much everything that’s been written about the Gandolfini estate. 1
But one thing remains true…
Regardless of how much Gandolfini was worth when he died and to whom his estate was distributed, close examination of the will itself reveals a poorly designed estate tax plan.
No matter which news report you believe, the debate surrounding Gandolfini’s will imparts us with two very important teaching moments:
1.) Hire The Best Estate Planning Team You Can Afford
If you have a significant estate (say north of $10M) and invested more for the car you drive than your estate planning, you can expect that your estate, like that of Gandolfini’s, will likely get “whacked” with unnecessary lawyer’s fees, probate administration fees and death taxes when you die–in the 40% to 50% range–what a waste. Worse yet, during your lifetime, your assets will be exposed to potential financially ruinous lawsuits. Why go with a “coach” style estate plan when you will save and protect so much more by upgrading to a “first class” comprehensive estate plan?
That might have been one of Mr. Gandolfini’s biggest mistakes, and it’s going to cost his family time, money and privacy. Most successful people understand they must upgrade their advisors as they increase their personal wealth but, unfortunately, not all. Because professional fees for tax planning are generally tax deductible and therefore subsidized by Uncle Sam, it just makes good sense to hire the best tax advisor you can afford.
The knowledge required to protect significant estates is a totally different skillset than drafting an average will. An experienced team of advisors can deftly navigate complicated business interests, multiple properties (sometimes in foreign countries), blended families, spendthrift trusts, life insurance plans, and the like. Hiring an estate planner who has experience with such issues can prevent an estate from falling into tax pitfalls or from being ravaged by lawsuits that a less sophisticated advisor might not catch.
2.) Get Out of Your Own Way
Know enough to know when you don’t know enough.
Mr. Gandolfini’s estate lawyer goes on record to indicate that his client made his own decisions, despite possible advice to the contrary.
This happens all the time. Let me give you my own example.
I recently recommended a course of action to a client for a comprehensive estate plan with asset protection that would cost between $50,000 to $75,000 in legal fees to shelter millions of dollars in estate taxes and place protective “firewalls” around his assets in case of a future unforeseen lawsuit. He initially balked at the cost, but when he saw the amount of money his estate would save in taxes at his death, my client was smart enough to realize that you “get what you pay for.”
At our final planning meeting, I outlined all the “what if” concerns he had about his estate. There were a lot, as his estate was highly complex. I took careful time to explain how each of his “what ifs” was addressed by my recommendation. He realized that the large upfront costs were nothing compared to knowing that his estate would save millions down the road. His assets would be protected from future potential lawsuits, his kids would be discouraged from fighting over the money by certain forfeiture provisions, and his legacy will be protected for decades to come.
The lesson here for clients is to clearly communicate all goals and concerns, then let your advisors get to work and trust that they have your best interests at heart. And, importantly, don’t be penny wise and pound foolish.
Remember that while good advisors know that the client is the boss and will follow their instructions to the letter, great advisors know their client wants the best advice money can buy. Great advisors work to achieve their client’s goals, even if it takes extra effort to get there. Great advisors would never let the government become your primary beneficiary.
Don’t let your estate get “whacked” like Big Tony’s. What kind of estate plan do you have: “Coach” or “First Class”?