James Gandolfini will be remembered for many things, and one of them might be surprise endings.
Fans of his Tony Soprano character will be forever perplexed by the sudden, jarring end to “The Sopranos,” the groundbreaking HBO series. In the middle of a tense scene in a diner, propelled by Journey’s “Don’t Stop Believin’,” the screen went black. Just like that, the series that had occupied the center of American pop culture was yanked.
Just as suddenly, Gandolfini left the world stage when he died of a heart attack after a day touring Rome last June. He left an indelible impression and a pile of money that even a Mafia don would envy.
Estimates place his estate at $70 million. He signed his will only six months before he died. He gets a point for having a will, but experts have been leaping on just about every other aspect of his estate planning. Or more accurately, his lack of expert planning.
Julie Garber, the wills and estates columnist for About.com, said many aspects of Gandolfini’s estate planning baffle her.
“Why did this man just have a will?” asked Garber, who is also vice president and senior trust officer of the Fifth Third Private Bank. “He should have had a revocable trust so that no one knew who was getting what. It was absurd that someone of his stature just had a will.”
For very public people who want to keep some things private, a trust keeps the estate from prying eyes because, unlike wills, the trust documents are not public. For example, in the case of former Beatle John Lennon’s estate, no one knows who got what because he had set up a carefully constructed trust.
“A reporter called me from New York about one of the famous estates,” Garber said. “And the reporter said, ‘It’s so irritating when they have a trust because we don’t know what the trust says.’ I was like, ‘That’s the point!’”
Gandolfini actually did have one trust, for his 13-year-old son, that was funded by $7 million in life insurance. The life insurance aspect also shielded the money from estate taxes.
The rest of his estate was not so lucky. In the patios of La Cosa Nostra, it got whacked. Well, semi-whacked.
Twenty percent went to his wife, who has an unlimited exemption as his spouse. The rest, above the $5.25 million exclusion in 2013, is exposed to federal and state estate tax. The federal bite is 40 percent, and it scales up from there with the state tax. Published estimates put the tax bill at $30 million.
Two other problems Garber had with Gandolfini’s plan were with the lack of planning. One concerns a house Gandolfini owned in Italy that he included in his will.
“I found it odd that he had a whole section on property in Italy in his U.S. will,” Garber said. “From my understanding, so many European countries have forced heirship that you need to have a foreign will that covers that. You wouldn’t put it in your U.S. will.”
Forced heirship is an ancient tradition in some countries, including Italy, where certain division is required of estates. The only U.S. state that requires it is Louisiana. It takes advanced planning to circumvent this rule if the client prefers another arrangement.
A limited liability company (LLC) is one way to handle an asset in those situations.
“There are ways around it like we have in the United States, such as setting up LLCs to convert property from tangible into intangible property,” Garber said.
The other point is that Gandolfini drafted his will soon after his daughter’s birth, which is commendable. But she gets her entire inheritance at age 21.
Think of yourself at 21. Now add several million dollars. Not a pretty picture.
At what age heirs should receive their inheritance is an issue for estates of any size, but few people plan for it. Attorneys and advisors all too often see the impact of sudden wealth on younger people. It is similar to how lottery winners burn their good fortune into ashes of regret soon after the big check is passed.
Philip Seymour Hoffman was a master actor finely attuned to the details of the characters he played. He was not so in sync with his estate planning. As with Gandolfini, he earns a point for having a will. And also like Gandolfini, he flubbed the second act, which led to a disappointing denouement.
Another similarity to Gandolfini was Hoffman’s surprise ending, dying in his Manhattan apartment at 46 with a needle in his arm. He left behind an estate estimated at $35 million, along with a big tax bill.
The first $5.34 million is excluded from federal estate tax, which is indexed for inflation. New York, however, exempts only the first $1 million. State laws are not even close to uniformity.
He left some of his estate in a trust for his son and the rest to Mimi O’Donnell, his longtime girlfriend and mother of his three children. He did not account for two of his children because he violated the third commandment of estate planning for the rich and famous: “Thou shalt update your plan.” (The first two are “Thou shalt draft a will” and “Thou shalt establish a trust.”)
Because Hoffman was not married to his girlfriend, she will not benefit from the spousal deduction of an additional $5.34 million. And apparently, he did not have life insurance, because O’Donnell’s lawyer said she wanted a quick resolution of the estate because she needed the money. Even the very wealthy should have life insurance for liquidity when the family needs it most. (Violation of the fourth commandment: “Thou shalt have life insurance.”)
Hoffman drafted his will in 2004 after his son Cooper was born. By not updating his will, he did not account for his two daughters born after 2004. He did set up a trust for his son, which pays him the total at 30. Garber said Hoffman’s 30 is better than Gandolfini’s 21, but it is still dangerous for the recipient.
“We’ve been recommending lifetime trusts,” Garber said. “Maybe make the child a co-trustee at 30 and give them control, but that way at least it’s in a trust. It’s not their money. If they get sued, if they get married and divorced, it’s in a trust. It’s not their money. It’s protected for them.”
There is also the option of graduated control. “Maybe at 30 become a co-trustee and 35 become a sole trustee,” Garber said. “But it’s so hard to tell when the kids are young how they’re going to turn out. We have trusts where people don’t get it until they’re 50.”
The problem of trust-fund train wrecks has spawned a new industry to help heirs. Estate planning attorney Richard Sugar of Chicago said his firm goes even further than helping control the wealth.
“We’re always looking for ways to preserve a person’s wealth and to make sure that it passes on to the next generation with as little diminution as possible,” Sugar said, adding that rich kids gone wild have a way of quickly diminishing wealth. “When I first started practicing, the routine way to distribute assets to heirs was to keep it in trust and pay a third at 25, a third at 30 and a third at 35. But the more I saw the consequences of that firsthand, the more I thought that’s really self-defeating.”
His office started an apprenticeship program to train heirs in handling the wealth before they take the reins. When is the age of responsibility? That depends on the person, of course, but Sugar used 35 as an example.
“If an heir is less than 35 and both parents have died, the heir is going to have a third-party trustee for a period,” which could be up to seven years, according to Sugar. “That trustee is charged with training the heir on how to use the trust money – how to budget, how to invest and how to pay taxes.”
The program provides the follow-through that would ensure that all the planning effort wasn’t for naught.
“It’s a way to preserve the trust vehicle,” Sugar said, “which has all kinds of tax benefits and creditor-protection benefits as well as giving heirs a sense of confidence that they can administer those funds correctly and won’t make mistakes and waste it.”
Creating a family office is another option for the very wealthy. It is a company set up to manage a family’s finances, but family offices offer more services ranging from household upkeep to travel arrangements.
The offices are expensive to operate, so it is an option only for ultra-high-net-worth families. But Sugar had another reason to avoid them.
“A family office continues to carry the responsibilities and discharges all those responsibilities that heirs need to be trained to perform for themselves,” Sugar said. “In some ways, the family office promotes indulgence, dependency and the suppression of ambition. We’re trying to promote the exact opposite.”
The type of trust ensures the legacy as well. In Hoffman’s case, Sugar was pleased to hear that he established a trust for his son, and if he was prudent, it would have been a dynasty trust.
“Dynasty trusts go on for many, many generations and it is particularly important with celebrities,” Sugar said, considering what it would have done for Hoffman’s son. “The dynasty trust would provide for the education and health needs, along with support, for his entire lifetime and when the son died it would pass on to the son’s children. And there wouldn’t be an estate tax ever again within the $5,340,000 exemption that Philip Seymour Hoffman would bless this trust with.”
The trust could grow beyond the initial exemption and still be shielded.
“That $5,340,000 set aside for Philip Seymour Hoffman’s son at the time of his death could grow to $20 million, and that $20 million would pass to his son’s children and not be subject to an estate tax ever again,” Sugar said. “Since the federal estate tax is 40 percent and state taxes could also be imposed at another 10, 20 percent on top of it, you’re talking about a significant reduction in wealth otherwise.”
It isn’t just cash and financial instruments that can go into the trust.
“If you put a copyrighted item into a trust at a time when you’re not terribly well-known, the value of that transfer is small, but when you become well-known and you’re No. 1 on The New York Times Bestseller List, that copyright suddenly explodes in value,” Sugar said. “But because it’s already embedded in the trust at a much lower value, that asset is protected and is available for the next generation at a much lower value and with very little tax consequences.”
If that book, that music master recording or those royalty rights were put in the trust when it was worth $10,000 and the value grew into the millions, that item would still remain $10,000 in the eyes of the tax man. And the work can still produce a revenue stream.
This is just one of the many ways trusts can be used and why estate planners love them. But they are still not universally used, particularly in New York, where many of the largest estate messes reside.
One of the most New York of New Yorkers, Ed Koch, was one of them. When he was mayor of New York City in the 1970s and ’80s, he would famously ask constituents, “How’m I doin’?”
In the case of his estate, his heirs can return a resounding “Meh.”
He left most of his estimated $10–$11 million estate to his sisters and three nephews whom he adored. But they will be receiving $3 million less because of the estate tax bite.
It was another case of not having a trust that would have helped shield his estate from prying eyes and some taxation, depending on its structure.
But it’s not the New York way. West Coast celebrities seem to get the trust concept, although some do a half measure.
Take the case of the “Fast & Furious” actor Paul W. Walker IV, who happened to have met a fast and furious end in a speeding Porsche. He had a trust, but it didn’t have anything in it. Consequently, his pour-over will funneled his $25 million estate into the trust. Trusts are typically funded in life with the pour-over will directing the remainder into the trust, which saves probate costs and avoids public scrutiny.
Walker did draft a will early, when he was 28, around the time he did his first “Fast & Furious” movie. That and the five that followed (soon to be six) made Walker very wealthy, but he did not update his estate plan in the intervening dozen years. Because the trust is private, we don’t know how well the old structure supported the new wealth, but we do know that a plan needs more periodic updating to reflect new factors.
Another thing we know is that he named his mother as guardian of his 15-year-old daughter Meadow, rather than the girl’s mother, who is reported to be an alcoholic. Overriding parental rights is always difficult in court and, in fact, Rebecca Soteros did get custody of her daughter in late March, pending a successful rehab stint. The lesson there is if there is not an agreement in life, sometimes the will won’t get it done.
Another way to place wishes on precarious footing is to scribble them onto a will. That’s what Beastie Boy Adam Yauch did.
When he died of salivary gland cancer at age 47 in 2012, his will revealed this section: “In no event may my image or name or any music or any artistic property created by me be used for advertising purposes.” Yauch had handwritten this part, “or any music or any artistic property created by me.”
Yauch’s inclusion might have overstepped his rights, because the note was claiming a copyright over his artistic work. But as we all know it was The Beastie Boys – so others shared ownership.
If the others shared his sentiment, and the odds are good they did, then his wishes may be carried out. If not, chances are good they won’t. It’s an instance of someone amending a legal document without good legal advice. Lawyers have said it would be unusual to have mixed publicity rights with copyright in the same sentence.
Yauch’s situation also seconds the lesson that an agreement in life is more likely to carry forward after death.
Otherwise, Yauch had a simple, straightforward plan for an estate valued at $6.4 million, according to reports. Some other celebrities left a far more complicated situation that can take families several years to untangle.
For example, who knew that the thump-thump-thump of disco music was basically the sound of a printing press making stacks of money?
The phrase, “Stayin’ Alive, Stayin’ Alive, hah, hah, hah, hah, stayin’ aliiiiiiiiyiiiiiiiihiiiiiiiihiiiive!” has driven millions mad,but apparently it also helped generate many millions of dollars (or pounds) for Robin Gibb before he died of colorectal cancer at age 62. Although he didn’t exactly stay alive, he did manage to leave an estate estimated at $43 million.
Because of Gibb’s many properties, it took a while to unravel the entire estate, which was initially estimated at $148 million. Another complication involved his family life. Apparently while in his second marriage, he had what the media likes to call a “love child” with a housekeeper. Gibb did not leave the mother or child a monetary bequest in his will, but he gave them about $6.5 million as a gift before he died, according to reports. He also left the mother a house valued at $1.25 million. All of which made for two bitter children from his first marriage, who got about $780,000 each. That prompted one of them, Robin-John, to respond with the Clintonesque Facebook post, “Dad never slept with that woman,” along with some rude characterizations.
Not only do disproportionate bequests leave bitter feelings, but they also fuel years of legal fights. So, just because people think they have the last word in a will, others might beg to differ, in court.
Although disco and rap seemed to have paid well, punk rock was not so remunerative. At least that was the case for Johnny Thunders, the guitarist for the genre-defining, gender-bending New York Dolls. The band blasted out of the early 1970s, influenced a generation of rockers and then burned out just as quickly.
He banged around in a couple of bands and on his own until he met his end in New Orleans’ French Quarter, curled up under a coffee table in his hotel room. The autopsy showed he mixed methadone and cocaine and may have had leukemia. Others said he was beaten to death for his methadone.
The punk-rock life left little time for estate planning and, needless to say, he wasn’t terribly careful about his money. He apparently didn’t think he would need to bother with a will or a trust for the $4,000 he had left. That might have been the sad story of another artist living fast and dying young, if it weren’t for his sister, Mariann Bracken.
She turned out to be the heroine because she was named administrator and grew that tiny seed into an estate worth hundreds of thousands of dollars. It paid out twice to Thunders’ heirs, including two sons he had with his estranged wife and a daughter he had with a Swedish groupie.
When Bracken died in 2009, the estate was thrown into chaos once again. The daughter had expected to take over the administration, but could not afford the $75,000 bond, so the estate has just been lying around. Thunders’ two sons are trying to take over the estate when they are not busy languishing in prison. Vito got out of maximum-security prison in New York fairly recently. Dino apparently is also out of jail in Texas.
They plan to enlist the help of their mother. As soon as they can find her. They have no idea where she is and have hired a private detective.
So, even on the path to self-destruction, it’s always a good idea to take a moment to do some estate planning.
All the way over to the complete opposite side of the wealth spectrum was William M. Davidson, the Detroit Pistons owner who left an estate worth between $2.2 billion and $5.5 billion, according to wide-ranging estimates, when he died at age 86 in 2009.
He was an industrialist who bought the floundering Pistons and grew it into a successful, and pampered, basketball team with a palace of a stadium. Davidson said he would never sell the team and expected it to remain in the family.
The story followed a familiar theme after he died and the Internal Revenue Service submitted a $2.8 billion estate tax bill, which some say might set a record. The family needed liquidity in a hurry and sold Palace Sports and Entertainment, which included the Pistons and the stadium, supposedly for $325 million. It was a nice return for the $8 million Davidson paid in 1974, but the price was at least $100 million under value, according to some reports.
It is a familiar problem for asset-rich estates. Besides sophisticated trusts that can best employ tax advantages, a good answer for many of these problems is life insurance. The message is getting through to some people. A recent $201 million policy made the Guinness World Records, although others say bigger policies have been sold but not publicized.
There might not be reinsurers nervy enough to cover a $2 billion policy, but maybe that’s not too far off.
Then there are the estates that might defy planning altogether. In the case of Evel Knievel, any advisor would have faced some stiff challenges.
When the legendary stuntman died at 69 of pulmonary problems in 2007, he named his second ex-wife as the sole beneficiary. For the honor, she inherited about $12,500 in assets. He left only memories for his five children and successive generations.
Even if they were to profit from his image, a court judgment hangs over the proceeds. That had to do with an incident that occurred in the 1970s.
Shelly Saltman had an insider’s perspective of Knievel because he helped promote Knievel’s famous Snake River jump as his press agent. He used that perspective to write a book about the experience in which he detailed Knievel’s abuse of drugs and family members.
Knievel was not happy and awaited Saltman in the parking lot of a studio in Southern California to express his feelings. Saltman approached Knievel and was pinned down by two people as Knievel swung an aluminum baseball bat at him. Saltman managed to wrest one arm free and blocked his head. His head was saved but his arm was shattered.
A judge awarded Saltman $12.75 million in a subsequent lawsuit. Knievel declared bankruptcy and never paid it. But ignoring the judgment didn’t make it go away. It just passed the problem on to the estate. Saltman is going after the estate for more than $100 million, which he said has accumulated in interest.
The case inspired The Associated Press to report: “Of all the bones Evel Knievel broke over the years, the costliest may have been the left arm of a PR man by the name of Shelly Saltman.”
So, no company would have covered Knievel for life insurance, unless it was a stunt in itself. He seems to have been bent on self-destruction on or off the motorcycle ramp. The only real lesson to come out of this case is a twist on the Google credo: Don’t be Evel.