James Gandolfini’s Death Will Bring in Money to IRS and NYS

July 10, 2013

Authored by: Stacie J. Rottenstreich and Karin Barkhorn

Gandolfini

The terms of James Gandolfini’s December 2012 Last Will and Testament were made public last week when it was filed in New York County Surrogate’s Court. There are a series of specific bequests to his teenage son by his first marriage and some friends and relatives, but the bulk of his probate assets is disposed of as his “residuary estate” and is divided among his sisters, his wife and his baby daughter.

The tax clause of his Will directs that all estate taxes are to be paid from his residuary estate. What does that mean to his beneficiaries? And what does that mean to the IRS and to the NYS Department of Taxation and Finance? Only the 20% of the estate that passes to James Gandolfini’s widow will qualify for the Federal and NYS estate tax marital deduction. (For a more detailed discussion of the federal marital deduction, see our prior post in anticipation of a ruling in the recently decided Windsor case, Will SCOTUS Eviscerate DOMA? What Effects Could That Have on Tax Planning?)  As a result, his estate could be subject to taxes at a combined rate of about 50% over his unused lifetime exemption, which is $1M for NYS and $5.25M for the IRS.

It is rumored that Mr. Gandolfini’s estate is worth approximately $70M. The total estate tax due is likely be over $25M and will be due a mere nine months after Mr. Gandolfini’s untimely death. In all likelihood, assets will need to be sold to generate liquidity to meet this estate tax bill.

The net remaining $45M of his estate, after the payment of debts, taxes and expenses, will then be divided among his residuary beneficiaries, leaving his widow with only 20% of $45M, not 20% of the original $70M.

To complicate matters further, Mr. Gandolfini’s Will makes reference to real estate owned in Italy. This property is held in trust for his two children. This property will not be subject to NYS estate tax. It is unclear what Italian tax will be due. However, any tax paid to Italy should reduce the tax due to the IRS. In addition to these taxable assets, the news reported Mr. Gandolfini had insurance on his life which was owned by an insurance trust which benefits his son and most likely would not subject to estate tax.

There has been much “back seat driving” by trust and estate experts since Mr. Gandolfini’s death and supposition as to how things might have been different. For example, had Mr. Gandolfini funded a Living Trust with all his assets and had a simple Pour Over Will, the provisions of his estate plan might have been kept private. The property left to Mr. Gandolfini’s infant daughter could have been left to her in trust, so she would not receive all of her bequest immediately upon attaining the age of 21. Mr. Gandolfini could have made different provisions for his wife. He could have left her a larger portion of his estate, either outright or in a trust which qualifies for the marital deduction. We do not know if the two had a prenuptial agreement in which they agreed on the provisions for her behalf in case of his death. If his widow did not otherwise waive her rights under NY law, she has a right of election under NY law which may be greater than the amount left to her under the Will.

But alas, we do not know Mr. Gandolfini’s intentions. Perhaps Tony Soprano is smiling in heaven at the justice of it all as he watches his daughter receive her share outright when she attains the age 21, his wife get the sum he intended and the IRS and NYS receive a hefty tax payment.