The taxman is coming. The late James Gandolfini left his heirs an estimated $70 million. However, because of poor estate planning, his heirs will owe a more than $30 million tax bill.
What did Gandolfini do wrong? In his will he left 80% of his estate to his sisters and nine month old daughter. This means that 80% of his estate is subject to the estate or “death” tax of about 55%.
As a result, Gandolfini’s family will have to start liquidating assets and selling his property to pay the bill. Unfortunately, it doesn’t matter to the IRS if it’s hard to come up with the money owed. Although the family may be able to get an extension to pay the entire amount, a significant chunk will be due in nine months.
Gandolfini left to his wife Deborah Lin the remaining 20% of his estate. Although the amount left to his wife isn’t directly taxable, even she will suffer. Gandolfini’s will stated that his estate should be divided up into shares after all taxes are paid. So instead of getting 20% of Gandolfini’s $70 million estate ($14 million), she will instead receive 20% of the $40 million left after taxes ($8 million). What she’ll receive is just over half of what Gandolfini likely wanted her to receive.
Gandolfini also had a separate trust fund set up for his wife and another for his 13 year old son Michael. Michael’s trust includes a $7 million insurance payout, which thankfully isn’t affected by the poor planning contained in his will.
In addition, if any royalty money paid as a result of Gandolfini’s film career or work on “The Sopranos” is payable to the estate, it too will be subject to the death tax.
There are possible solutions for the family to limit the tax burden, but it won’t be easy. For example, Gandolfini’s sisters and daughter could renounce their shares in the estate in lieu of payments down the road. However, it could be very difficult to get anyone to renounce the payout of potentially millions of dollars. Stay tuned…