Death and Taxes: James Gandolfini’s Lesson to Us All

7/8/2013

The acting world lost one of its brightest lights when Sopranos star James Gandolfini died of a sudden heart attack while touring Italy with his family last month. Gandolfini was the iconic face of HBO's acclaimed drama, and became the model for a new breed of anti-heroes like Breaking Bad's Walter White and Mad Men's Don Draper. Few critics would dispute The Sopranos place as one of the greatest dramas in TV history.

Hollywood stars have always been famous for bringing home the big bucks, and Gandolfini was no exception. His worth at the time of his death was around $70 million. He was known to be very generous, especially to his co-workers on the show – he doled out financial gifts and fought for his colleagues to be paid for their work. He also made sure to set up trusts for his wife and children. Apparently, though, while Gandolfini seemed to have his financial ducks in a row, he never had the all-important sit-down with his lawyers or accountants about estate taxes, or how to properly plan for them in the event of his untimely death. One estate-planning attorney is calling his will a tax “disaster.” Consequently, the IRS is about to receive a very large portion of his estate.

According to reports, Gandolfini 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 would have had with better planning.

If taxpayers understand nothing else about estate taxes, it’s critical to know this: You can bequeath as many millions as you like to your spouse, completely tax-free. If you bequeath money to someone other than your spouse, including children, anything else above a "unified credit exemption amount" (currently $5.25 million per person) is subject to a 40% tax.

Making matters worse, the tax itself is due nine months from Gandolfini's June 16th death. And, just like Tony Soprano’s henchmen, the IRS wants cash (they'll take a payment plan if they have to, but they won't be very happy about it). That means Gandolfini's heirs may be forced to sell assets, perhaps at fire-sale prices, to come up with the money, taking an even greater loss in the estate.

The average taxpayer may not have to worry about the IRS pinching $30 million from their estate, but James Gandolfini's untimely passing is a reminder of just how important proactive planning can be to a family's future. Having a will is only part of the process – wise planning can make sure money goes to who it was intended.