Estate Planning Mistakes of Celebrities: A Presentation by Jeff Matsen

Estate Planning Mistakes of Celebrities: A Case Study of James Gandolfini Presented By: Jeffrey R. Matsen Marin Bradshaw www.MVMLawyers.com

James Gandolfini

1961—2013

2

BACKGROUND ON JAMES GANDOLFINI

CAREER Attained worldwide fame for his role as Tony Soprano on HBO’s smash hit series The Sopranos from 1999 to 2007 for which he won three Emmys and a Golden Globe

4

CAREER Has more than 51 film and television credits

5

CAREER Spokesperson and ad personality for Kobold watches

6

FAVORITE CHARITIES

7

FAMILY •

•

First married to Marcy Wudarski with whom he had his son, Michael Divorced three years later in a contentious divorce proceeding

8

FAMILY Married to Deborah Lin at the time of death, with whom he had had his second child, a daughter named Liliana in October 2012.

9

DEATH Died suddenly of a heart attack in Italy at the age of 51, survived by his wife and two children, Michael (13) and Liliana (infant)

10

DATE OF DEATH BALANCE SHEET An estate in Italy • A co-op apartment and parking space in Manhattan’s Greenwich Village • A life insurance policy with a $7M death benefit • An extensive collection of watches and other personal property valued at $2M • Royalties from The Sopranos and other productions • Other cash, securities, and retirement assets ___________________________________________ Total estate widely reported to be $70 Million* •

11

WHAT JAMES GANDOLFINI DID RIGHT

12

1. CREATED A WILL • •

• •

Dated December 19, 2012 Made cash distributions of approximately $1.6M to friends and family Left personal property to son Divided the residue of the estate between his sisters, his wife, and his infant daughter 13

CONTRAST: INTESTATE CELEBRITIES

14

BASIC PROVISIONS OF THE WILL •

•

•

•

$1.6 million and personal property to specified family members and friends The rest of his estate was left to his two sisters (30 percent each), his wife (20 percent) and his infant daughter (20 percent) Michael inherited proceeds of a life insurance policy held in an irrevocable trust Property and land in Italy to both of his children in a trust.

15

2. REMOVED INSURANCE FROM ESTATE Court documents allude to an Irrevocable Life Insurance Trust with a death benefit of $7 Million for the sole benefit of James’s son Michael.

16

CONTRAST: WHITNEY HOUSTON ESTATE •

•

The estate, ($40M plus continuing royalties) was completely subject to estate tax and probate fees.

Whitney Houston’s sole beneficiary was her 19year-old daughter, who had the immediate right to the entire estate 17

WHERE GANDOLFINI WENT WRONG Non-tax issues

18

1. USING A PUBLIC DOCUMENT •

•

Within weeks of Gandolfini’s death, his Will was submitted to the New York County Surrogate’s Court, and its provisions were made public.

Problems: •

• •

Media frenzy regarding the distribution of the estate assets Descriptions of estate published all over the world Potential to attract financial predators 19

2. CHOICES RE: FIDUCIARIES •

•

•

The residuary inheritance for Liliana will be held in trust until she is 21, and the property in Italy will be held in Trust for both kids until Liliana is 25 The trustees are Deborah Lin (wife), Roger S. Haber (attorney), and Leta Gandolfini (sister) Problem: Each trustee will have different interests, and they may not agree about the next 25 years of administration.

20

4. SILENCE REGARDING TRUSTEES

The Will is silent regarding removing and replacing trustees, trustee competence, whether decisions must be unanimous, etc.

This can result in disagreements between trustees, expensive and time-consuming litigation, unfair distributions to beneficiaries, etc.

?

21

3. GIVING TO YOUNG BENEFICIARIES There is no way of knowing how responsible or conscientious Michael and Liliana will be when they are 21 and 25.

22

4. PRECATORY LANGUAGE

Gandolfini expressed a strong wish that the property in Italy remain in the family. Nothing in the Will ensures that this will be the case.

23

5. IGNORING INTERNATIONAL LAW Italian inheritance laws do not allow for the distribution described in the Will: equal division between the two children.

Deborah Lin has a legal right to a forced share of at least one quarter of the Italian property.

24

6. EXPOSING ASSETS TO CREDITORS Probate assets pass subject to the creditors and claimants of the estate.

In New York, a creditor has six years to bring a claim against a decedent’s estate.

25

WHERE GANDOLFINI WENT WRONG Tax issues

26

1. NOT USING MARITAL DEDUCTION •

•

Only 20 percent of the estate passed estate tax free to Gandolfini’s wife Assuming an estate of $70M and 80% is subject to estate tax: • •

$20M federal $10M state

27

2. NOT USING CHARITABLE DEDUCTION Gandolfini made no gifts to charity, even though he was clearly interested in supporting charity while he was alive.

28

3. FAILING TO ALLOCATE TAXES If the estate owes any taxes at all, the executors will need to decide whose share should pay them: • Recipients of cash gifts?

• Michael, who only received personal property?

• Deborah, whose bequest passed estate tax free?

• Recipients of real property?

• Residual beneficiaries?

29

BETTER ESTATE PLANNING OPTIONS

30

1. USING A LIVING TRUST Everything that was made public in Gandolfini’s will could have been kept private in a Living Trust.

• No publication • No probate procedures or fees • No media hype

31

2. USING LIFETIME GIFTING Example: Real property could have been transferred during Gandolfini’s life in such as way that it would remain in the family and not be included in his taxable estate at death.

Any lifetime gifts would have grown estate tax-free.

32

3. USING CHARITABLE DEDUCTIONS Gandolfini supported multiple charities while he was alive, and he could have directed the money that he will lose in estate taxes to those charities instead.

33

4. IMPLEMENTING ASSET PROTECTION Gandolfini could have maintained control of his assets during his lifetime also protected them from his own creditors and those of his children.

34

EXAMPLE Life Insurance Trust

99% interest

FLLC

1% interest

Asset Protection Trust

Managed by grantor

Intentionally Defective Irrev. Trust

Holding discounted lifetime gifts

Revocable Living Trust

• Full use of marital deduction • Dynasty provisions Testamentary charitable lead trust provisions to zero out estate taxes • Gifts to beneficiaries with detailed language regarding how gifts are to be made

1% interest

CLLC

EXAMPLE Estate of Steve Jobs • • • •

$7 Billion estate Blended family Death at 56 yrs Used sophisticated estate planning to accomplish • • • •

Inheritance for family No probate No estate tax No publicity

36

Thank you

695 Town Center Drive | 7th Floor | Costa Mesa, CA 92626 Phone: 800.447.7090| Fax: 866.447.7090 www.MVMLawyers.com | www.JRMatsen.com

37