By J. Lee Johnson on August 9, 2013

When actor James Gandolfini — better known as TV mob boss Tony Soprano — passed away in June at the age of 51, it was inevitable that his passing would make headlines. Less expected were headlines detailing his estate plan and painting it as a tax disaster triggering millions of dollars in estate taxes that could have been avoided.

The intrigue is centered on Gandolfini’s will, which makes a series of cash gifts to various individuals followed by a gift of the family home in Italy to a trust for the benefit of Gandolfini’s two children: son Michael, 13, and daughter Lilliana, 9 months. The balance of the estate is to be divided with 20 percent going to Gandolfini’s wife, Deborah, 30 percent going to each of two sisters, and the final 20 percent to daughter Lilliana. Gandolfini previously established a trust for Michael when he divorced Michael’s mother.

Is this a disaster? It is hard to say because a will only discloses assets that are not being distributed pursuant to a trust or beneficiary designation (such as in a life insurance policy or retirement plan). So, when looking at the will, we only see part of the picture. Nevertheless, this estate plan raises several issues relevant to many people in America — even those without estates the size of Gandolfini’s.

• The Second Marriage Dilemma. Like many people, Gandolfini was in a second marriage and had a child from his previous marriage. Many struggle with the desire to provide for their spouse while also ensuring that any children from a prior marriage are provided for. And, with large estates, there is the additional desire to make use of the estate tax deduction available for bequests to the spouse. Gandolfini’s decision to leave only 20 percent of his probate estate to his wife means that 80 percent of his probate estate is subject to estate tax.

Is there a way to take advantage of the marital deduction, provide for your spouse, and ensure that assets will be left for your children? A marital trust could have been drafted to provide that Deborah was to receive all income (but not principal) for her lifetime with all assets passing to Michael and Lilliana upon Deborah’s death. Properly drafted, such a trust would qualify for the marital deduction. If estate taxes are not a concern, a trust can be used very creatively to provide for both spouse and children.

• Protect your loved ones from themselves and others. With the exception of the home in Italy, Gandolfini’s will does not leave any bequests in trust. And, even the Italian property comes out of trust when Michael and Lilliana reach age 25. Lilliana will have access to her 20 percent inheritance at age 21. Many would consider it ill advised to leave potentially millions of dollars to someone in their early twenties. Leaving assets in trust for children can prevent the assets from being wasted through youthful ignorance or irresponsibility.

Leaving an inheritance in trust can also protect the assets from a child’s creditors in the event the child is involved in a lawsuit or runs up unexpected medical bills. A trust allows you to give your loved ones protection that they cannot give themselves. If instead, the loved one receives their inheritance outright, those funds will be available to creditors.

Finally, using a trust can also minimize future estate taxes by keeping the trust assets from being included in your child’s estate when they pass.

• Foreign property? Use foreign counsel. What could be a problematic provision in Gandolfini’s will is the disposition of the home in Italy. Foreign real estate is governed by the laws of the foreign jurisdiction.

Many countries, including Italy, provide that children and spouses are to receive a minimum inheritance that cannot be reduced by a will. One must therefore consider whether the foreign country will assert its inheritance laws. If so, a will purporting to reduce the spouse or child’s share below the prescribed amount may be ignored. It is therefore critical that your U.S. attorney work with counsel in the foreign jurisdiction to make sure an appropriate plan (perhaps using a foreign will) is created.

• Consider upkeep of property. Another potential issue with the Italian residence is that the property is left in trust with no funds or provision for its upkeep. The absence of funds or guidance can lead to friction as heirs fight over who will pay for taxes, maintenance, or repairs. In the end, James Gandolfini’s estate plan may be exactly what he wanted. But, it is important that each of us has at least a basic understanding of how our estate plans will work when they are implemented.

• J. Lee Johnson is an attorney with Ambrecht & Associates in Montecito. His practice focuses on complex estate planning for both U.S. and international clients. Contact him at johnson@taxlawsb.com.