Revealed in the story linked here, late actor James Gandolfini through unfortunate planning, left his family with a $30 million dollar death tax burden.

This should be a wakeup call to anyone who will eventually die. (If this does not include you, I would love to hear your story!)

Actor James Gandolfini, who played Tony Soprano in the HBO series The Sopranos, died of a heart attack at the age of 51 while vacationing in Italy. He is survived by his wife, Deborah Lin, and two children: a 13-year-old son, Michael Gandolfini, from a previous marriage, and an 8-month-old daughter, Liliana. Gandolfini left an estate that has been estimated to be in excess of $70 million.

Following James’s demise, his wealth, estimated to be $70 million, was shared according to his will.

The 20% distribution to his wife is safe from estate taxes but the remaining 80% of the assets is subject to an immediate combined federal and state tax rate of 55%. Assuming that the estate is, in fact, worth $70 million, the estate will pay approximately $30 million in death taxes. This amount becomes due nine months after Gandolfini’s death. How is the estate going to come up with this amount of money? Will the estate have to sell some of its real estate at below market prices to come up with the money in such a short period of time?

There were many different options that Gandolfini could have used to minimize the tax burden and avoid making a “gift” of $30 million of involuntary philanthropy to the Federal & State governments. Three alternatives (of which there are numerous others) are:

  • Gandolfini could have purchased a life insurance contract payable for the entire amount of the estate’s death tax liability. Life insurance payouts are not subject to inheritance taxes if properly arranged and would have made it easier and far less expensive in paying the $30 million owed in death taxes.
  • Instead of the 20% distribution to his wife, Gandolfini could have left all of his assets to his wife. Tax law allows for unlimited tax-free transfers to spouses under the marital deduction. This would have delayed the payment of death taxes until Gandolfini’s wife also died. In the meantime, she could have established a network of tax-advantaged trusts to divide the estate at the time of her death in accordance with her late husband’s wishes, as well as buying life insurance on her own life to greatly reduce the impact of taxes.
  • Finally, there was nothing mentioned in Gandolfini’s will reflecting any charitable or philanthropic intent. There are a number of philanthropic tools that could provide benefits to himself and his family members, and direct money to philanthropy instead of the government. Not only is this permitted by tax laws … it is actually encouraged by the tax system. Through careful planning, someone can leave money to charity, and at the same time, pass greater wealth to family members as compared to simply leaving assets to family members outright. Additionally, philanthropy is often an unexpected “glue” for families. It can make well-connected families stronger. It can bring disconnected families together through a shared purpose. Further, philanthropy, which I define as “intentional giving,” has been demonstrated to be one of the best teachers of character. It can break the cycle of selfishness that seems to permeate much of Western culture today … the sickness I have heard described as “Affluenza”.