Last week we discussed the recently unearthed will of former Sopranos star James Gandolfini. The document was filed with a Manhattan court late last month, with the actor's assets being left to a wide range of people including his two children, wife, sisters, and several friends. Those earlier reports noted that Gandolfini's assets including life insurance, real estate in Italy, and more. All told he allegedly had more than $70 million in assets.
With fortunes of that size, estate taxes are obviously an immediate concern. There are both federal and state taxes that apply to inheritances. The rates for each are different and they take effect at different income levels. Federal estate taxes apply to non-exempt assets over $5.25 million with a top rate of 40%. Alternatively, New York's separate tax kicks in at assets over $1 million with rates between 5% and 16%.
Considering there are two levels of taxation and rates that are not trivial, it is critical to account for these potential taxes in an estate plans. Attorneys working on these issues for local residents must be intimately aware of all legal options to guard against the largest tax bills.
Unfortunately, it now appears that Gandolfini's plan may not have been all that tailored, exposing the estate to a significant tax burden. Literally tens of millions of dollars will likely be lost as a result of what some have dubbed an "estate planning disaster."
According to a recent report in the NY Daily News, more than $30 million of the $70 million total may not go to family members--but to the government. That is because specialized legal tools to prevent the estate from tax exposure were not used. As much as 80% of the total estate was apparently open to taxation. With both state and federal taxes applied, nearly 55% of the exposed estate will be lost to the the government.
Sadly, this means that the family will likely be required to sell assets to pay the tax bill. Few individuals in these cases have enough actual cash available to pay the bill with funds not tied up in real or personal property. There will not be a huge amount of time to sell the assets and pay the bill, with much coming due in six to nine months.
The sad situation is a vivid reminder of the consequences of not taking full advantages of the available ways to save on estate taxes. Even if your family's fortune is below the exemption levels, estate planning is critical to streamlining the processes and ensuring your wishes are actually carried out in as efficient a way as possible.