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    Lessons Learned from James Gandolfini’s Will

    Wednesday, July 17th, 2013

    No matter how much you have, estate planning is essential.

    When James Gandolfini, the actor who played mob boss Tony in HBO show “The Sopranos”, died of a heart attack at 51 last month, he left an estate valued at roughly $70 million. Commentators have declared his estate plan a “disaster” because the lack of planning leaves a significant estate tax bill. This means the people he loved will receive less money while the government will get a big chunk of his money to use as it sees fit. This violates the first principle of estate planning – staying in control. You only have three choices where your money goes when you die: Your family, charity and the government.  With better planning less money a smaller check would have to be made out to the IRS and Gandolfini’s loved ones and favorite charities would have ended up with more. While many people will not have to worry about paying estate taxes there are other lessons to be learned.

    The next problem is that because Gandolfini had a will based estate plan, in order to pass title to his property to his beneficiaries, his will had to be probated in New York. Once that happened, his will became a public record and now anyone can see who he left his assets to.  To better protect his privacy it would have made sense to have a trust based estate plan. That way probate would not have been necessary and the whole world would not have been able to learn the names of his beneficiaries and how much he left them.


    Another mistake in Gandolfini’s planning is that assets were left outright to his sisters. Because his sisters will own the assets outright , they are subject to being taxed twice: first at their brother’s death and again when they die. To avoid having to pay estate tax twice each sister should have been left her share in a continuing trust. Had this been done the money left to them would not have been in their own estate when they die and wouldn’t be subject to estate tax a second time. Each sister could have been named as trustee of her own trust with broad powers to use the money for their “health, education, or maintenance.”  In addition, through a “power of appointment” each sister could have determined who the trust would benefit and who would act as trustee if there were any assets remaining when they died. Finally,  leaving money to his sisters in a trust rather than outright would have protected the gift from both creditors and predators who might be attracted by his sisters’ new found wealth.


    Another problem is how Gandolfini left assets to his two children- Michael, from his first marriage, and Liliana, who is less than a year old. Under the terms of their trusts, each child gets complete control over millions of dollars the day they turn 21.  It is not a good idea to have a trust end at a certain age because you don’t know what the child will be like. Is a 21 year old mature enough to make decisions on how to spend money? What if they have a drug or alcohol problem?  It would have been better to have a continuing “discretionary” trust with professional trustees to manage and distribute money to the children.

    529 Plans Are Useful for College Tuition AND Estate Planning

    Friday, February 3rd, 2012

    As the cost of college tuition rises, so do parents’ stress levels. According to one website, the cost of tuition for one year at some schools can be enough to make a decent down-payment on a house. By the time you’ve paid for your child to spend 4 or 5 years at a university you could almost have bought a vacation home!

    This is why 529 plans are an appealing savings tool for many parents. Parents and grandparents already know most of the benefits of a 529 plan: Money inside the plan is outside of the parent’s taxable estate; additionally, funds held inside a 529 plan belong to the parent, not the child, which means not only that parents can choose to reclaim the money if needed in the future, but also that the money in a 529 plan won’t count against the student when he or she applies for financial aid.

    What many parents (and grandparents) may not know, and which this article on Investors.com points out, is that 529 plans can also be a useful estate planning tool. “In 2012, the annual gift tax exclusion is $13,000. If you wish, you can put $65,000 into a 529 account for, say, your grandson now. That contribution will be treated as five annual installments of $13,000 in a row for gift tax purposes.” This can be quite a boon for parents or grandparents looking to provide some financial help to their college-age loved ones and avoid gift-taxes.

    As beneficial as this sounds, it is important to always remember that no two families are alike, and what may be a useful strategy for one family can be detrimental to another. Please contact your financial planner or estate planning attorney for more information about how a 529 plan may benefit your family.

    You Can Help Your Child Become a Homeowner—But Do Your Research First

    Wednesday, February 1st, 2012

    American culture is one that respects independence and self-reliance; but with the current tough economic situation, and the fact that more young adults are graduating from college without jobs, or living at home until well into their 20’s, many families are opting to do things the old-fashioned way—with parents giving kids the financial help they need to buy their first home.

    Helping your child make such a significant purchase, however, requires foresight and planning in order to do it without hurting your own tax- and estate-planning potential, and without creating family conflict later on. This article from CNN Money has some good advice for would-be parental mortgage-lenders.

    The first thing to remember ANY time you make a monetary gift is that the federal government will only let you give away so much each year without incurring a gift tax. “In 2012, a taxpayer can give $13,000 to an individual without triggering so-called gift taxes. Married couples may underwrite their child to the tune of $26,000 a year.”

    If you’d like to contribute more than $13k or $26k toward your child’s first home there are ways to go about it without hurting your own tax status later on. Your best option in this case might be to “lend money to your child — and you can offer terms far more generous than any bank’s. To make sure the money is considered a loan and not a gift for tax purposes, you’ll need to charge interest based on the IRS’s ‘applicable federal rate’ minimum for various loan maturities.” These rates are generally very good, “as low as 0.19% for loan terms of three years or less to 2.63% for loan maturities of over nine years.”

    Of course, if you become your child’s mortgage lender the government isn’t going to just take your word for it; you’ll want to be sure you have the proper contracts drawn up and signed, and that you keep good records of all payments. “If the loan is properly structured as a mortgage and filed, the interest will be tax-deductible for your child. Having a contract also makes estate planning easier.”

    What Will You Be Doing With This Year’s IRA Withdrawal?

    Friday, January 13th, 2012

    Many of our clients who are 70 ½ or older have chosen in the past to give a certain portion of their required IRA withdrawal to charity each year; doing so has allowed them to take the required withdrawal, keep their taxable income down, and give to a cause they care about all at the same time. Unfortunately, the individual-retirement-account donation rule expired at the end of 2011 and has yet to be restored by Congress.

    This recent article in the Wall Street Journal explains that “under current rules, the first dollars out of an IRA count as the required withdrawal. So if an IRA owner makes a withdrawal before Congress extends the law, he or she can’t redeposit the funds and make a donation of IRA funds after lawmakers act.”

    The expiration of this rule may not be a big deal for many of our readers who intend to make charitable donations as they always have, regardless of retirement-account donation benefits; but for some, not knowing what Congress may choose to do is making it hard to design a financial plan for the year, and causing increasing stress. “The problem arises for IRA owners [who are] over 70½ and must take an annual payout from the account. They want to withdraw as little as possible in order to let the assets expand but also want to donate some or all of the required payout directly to charity.”

    Your best bet right now may be to consider your ultimate goal both for your IRA payout and for your charitable giving for the year, and then talk to a trusted advisor. One thing any estate or financial planner will tell you is that there is almost always more than one way to accomplish your goals. We cannot stress enough, however, how important it is to stay on top of any legal requirements or changes in the law when it comes to IRAs and retirement savings.

    Friendly Reminder to Take Advantage of Tax Deductions Before Year’s End

    Monday, December 12th, 2011

    As 2011 draws to a close just about everybody has their minds on vacation, travel, and gift-buying, so we just wanted to take a moment to remind all of our readers to take advantage of your tax deductions and allowances before the year is over. These may include sending a check to your favorite charity, giving a generous cash gift to children or grandchildren, or selling securities that have lost money this year.

    This isn’t all you can do to wrap up your 2011 tax package. This article in the New York Times explains that the next two years of tax policy are likely to be a bit rocky, and that “beyond the usual recommendations… you should use this year to get your affairs in order for what promises to be an uncertain two years of tax policy.”

    If you’re not sure which deductions might apply to you, our office (along with the article mentioned above) has come up with a list of tax breaks to consider:

    1. Charitable gifts to most non-profit organizations are tax deductible; and while you can’t deduct any time you spend volunteering, you can deduct any out-of-pocket expenses incurred while volunteering.

    2. You can give monetary gifts of up to $13,000 to as many individuals as you would like without incurring the gift tax.

    3. The 30% energy tax credits of 2010 expired at the end of last year, but new (albeit lower) credits were passed for 2011. Check the energy star website for information if you made any energy-efficient improvements to your home this year.

    4. If you are over 70½ you are currently allowed “to directly donate the required minimum withdrawal from [your] retirement account to charity.” (This is something that may disappear with new tax laws in 2012.)

    5. Teachers are allowed to deduct up to $250 spent on classroom expenses.

    6. A significant tax loophole set to end this year is one that “allows people whose marginal tax bracket is under 15 percent to pay no capital gains tax when selling securities held for more than a year.”

    These are only a few of the tax strategies you may want to consider before the end of the year. For more tax-saving strategies please talk to your financial advisor.

    Long Term Care Insurance Is Tax Deductible for Business Owners

    Friday, December 9th, 2011

    By now most people, when planning for their “Golden Years”, know that they need to consider the possibility that they may need long-term care at some point in time, and that long-term care insurance is a logical option for this purpose. What most people don’t know is that if you are self-employed or own your own business the cost of your insurance premiums could be tax deductible.

    A recent article in Forbes reveals that “self-employed folks with business income that passes through onto their personal returns… can deduct 100% of the premiums paid for themselves (and spouse) as a business expense, just like health insurance. These folks are still subject to the age-related premium limits, but that doesn’t necessarily limit [their] deduction.”

    This could be a HUGE incentive for self-employed business owners who tend to lag behind their traditionally-employed counterparts in saving for future retirement expenses. It’s not that business owners are less concerned about their futures than their peers, but that as entrepreneurs struggle to get their small business off the ground in the early years they are more likely to put any extra income back into their business, rather than investing it for retirement. This tax-deduction for long-term care insurance can be just what entrepreneurs need to put them back on equal footing.

    In today’s economy traditional employees and entrepreneurs alike need all the help they can get saving for the future and protecting the assets they have. To find out more about this, or other strategies to prepare yourself and your family for what we hope will be a long and prosperous retirement, please contact our office.

    IRS Announces Another Extension for Estate Tax Filing Deadline

    Wednesday, September 14th, 2011

    Just a few weeks ago the IRS announced the November 15, 2011 estate tax filing deadline for large estates of decedents who passed away in 2010; but some executors might be relieved to know that the IRS recently extended the deadline to January 17, 2012.

    This extension gives executors of large estates more time to determine whether or not its in the best interests of the heirs to take advantage of the 2010 estate tax repeal. The decision facing executors of the 2010 estates is this:

    * Choose not to pay estate taxes, but subject the assets of the estate to carryover basis rules (meaning heirs will pay capital gains taxes based on the price of an asset when it was initially acquired by the decedent); or

    * Pay estate taxes under the 2011 rules, with a $5 million per-person exemption and a 35 percent top rate, but with a stepped-up income tax basis (meaning heirs will pay capital gains taxes on the price of an asset when it was inherited.)

    For any executors who haven’t already made the decision, they can now take more time to weigh the pros and cons, and maybe even enlist the advice of an estate planner, tax planner, or probate attorney to help walk them through any possible unexpected consequences. If you are an executor or an heir faced with this particular and time-sensetive issue, please don’t hesitate to contact our office for assistance.

    Some Tax Saving Strategies from the Wall Street Journal

    Wednesday, August 24th, 2011

    Income, estate, and other federal tax levies have commonly been a bone of contention between those with different political ideologies; but the current conflict has reached unusual heights, with various million- and billionaires publicly expressing their views (pro or against) about current tax laws. Of course, million- or billionaires aren’t the only ones with strong opinions about taxes.

    If you feel that you pay too much in taxes, Brett Arends of the Wall Street Journal has some tips to help you save on taxes in the future. Much of his article is tongue-in-cheek, but the suggestions are valuable ones. Of special interest to our firm and our clients are four of the tips nestled in the middle of the article:

    Give to your family. “Until the end of 2012 you can give $5 million, tax-free… In addition you can give $13,000 a year to each recipient — each child or grandchild — and a spouse can do the same. So a married couple with, say, three children and eight grandchildren can give another $286,000 a year, on top of that one-off $10 million. Over ten or twenty years that really adds up.”

    Put your grandkids—and great grandkids—through college. “Money paid directly to schools or colleges escapes estate taxes.” Furthermore, if you contribute to a 529 educational savings account that money can be tucked away—and eventually used by the student for whom it is intended—tax free (so long as it is used for educational purposes.)

    Buy life insurance. Proceeds from a life insurance policy can go to your beneficiaries tax-free upon your death, although you may have to make some arrangements ahead of time. The article states that “Typically you put the policy in an Irrevocable Life Insurance Trust… The premiums that you pay annually are gifts to the beneficiaries… And when you die, the proceeds of the policy go to the trust, for the beneficiaries, free of estate tax.”

    Talk to an estate planner. “There are other moves that can cut your estate tax, too. A Qualified Personal Residence Trust can slash the estate taxes on a residence. A Grantor Retained Annuity Trust, or GRAT, can slash them on an investment portfolio. So, too, can setting up a Family Limited Partnership. Financial planners say this is a great time to put investments — like stock — into a GRAT.”

    If you have questions about these tax-saving strategies, or other strategies that can help you preserve your estate for your heirs, please contact our office. We can help you determine what your best options are to help protect your assets—and your family—in the years to come.

    Don’t Let Tax Laws Limit Your Generosity

    Monday, August 22nd, 2011

    The past two years have been tough on the average American family. The economy has been floundering and the unemployment rate has been hovering around 9-10% since 2009, not to mention the roller coaster ride we’ve all been through with the stock market. But through it all some families and individuals have fared better than others—and many of these lucky ones are eager to extend a helping hand to their family and friends… if only the tax laws would let them.

    A recent article in Forbes, entitled 6 Ways to Give Family and Friends Financial Aid, explains that “the tax law regulates your [financial] generosity… This kind of assistance is considered a lifetime gift unless it’s for someone whom you are legally obligated to support, such as a child.” This is important because “lifetime gifts” over a specific amount (currently $5 million per person) are subject to taxation.

    “Gifts of cash or other assets can count against your $5 million exclusion from gift or estate tax. If you exceed that limit, you could wind up owing gift tax of up to 35%. Even if you don’t, your lifetime gifts would reduce how much you can pass tax-free through your estate plan.”

    But if you are willing to work within the system there are ways to give financial assistance to friends and family without having to pay gift tax. Here are a few strategies suggested in the Forbes article:

    1. Don’t give more than $13,000 (or $26,000 if you are giving as a married couple) per person per year. $13,000 is the current annual gift exclusion amount, and giving more than this can count against the $5 million lifetime exclusion.

    2. Pay medical, dental, or tuition expenses directly to the provider. “Without using your annual exclusion or dipping into the lifetime limit, you can pay for tuition, dental and medical expenses of anyone you want. Note that you must make the payments directly to the providers of those services.”

    3. Contribute to 529 educational savings plans. While contributing to a 529 savings plan does still count as a financial gift, once in the account the money can grow and be withdrawn tax-free, “provided it is used to pay for college, a graduate, vocational or another accredited school, or for related expenses.”

    These are only a few of the suggestions offered in the article, and a consultation with your attorney or financial planner could reveal even more options available to you should you wish to offer aid to friends or family without coming up against the lifetime gift or estate tax. Please contact our office for more information.

    Charitable Lead Trusts Can Benefit Your Heirs AND Your Favorite Charity

    Monday, July 25th, 2011

    2011 and 2012 are good years not only for heirs but also for charities; high estate- and gift-tax exemption amounts (as much as $5 million per person) have many wealthy families exploring their options for gift-giving, and record-low interest rates are prompting many financial advisors to recommend that their clients set up charitable lead trusts to leave money to both their favorite charity and their heirs with little or no tax hit.

    When setting up a charitable lead trust the grantor puts the desired assets into a trust for a specified number of years, naming a charitable foundation as the first beneficiary, and a non-charity (children or grandchildren) as the remainder beneficiary. Each year during the specified time period payments are made from the trust to the grantor’s designated charity, once the trust’s term expires, what is left goes to the grantor’s heirs.

    Charitable lead trusts have fallen in and out of favor with financial advisors over the years, and were most recently popular after Ms. Jacqueline Kennedy Onassis used one to great effect. This recent article in the New York Times describes the pros and cons of the charitable lead trust:

    “Over the years, charitable lead trusts have been a way to give money to charity with the possible benefit of passing what was left to children without paying estate taxes.” Although the payout (to both beneficiaries) of a charitable lead trust is highly dependent on the starting interest rate, “the likelihood today that one of these trusts would have money left for heirs [is] 95 percent. The trusts are written so that the assets appreciate substantially over time, but even if they do not, the designated charity — often a family foundation — will still get the money.”

    One of the downfalls of a charitable lead trust is that rules and regulations can be confusing, “they are hard for someone who is not a tax lawyer to understand.” Furthermore, some families have “used these trusts to give money to their family foundation. This runs the risk of being deemed self-dealing if the person who set up the trust names his foundation as the recipient and then parcels out the money himself.”

    The bottom line is that while a charitable lead trust can be an incredible useful tool benefitting both your heirs and your favorite charity (especially if set up during the next year and a half), it is not something to be done lightly, without the advice and help of an experienced attorney or financial planner.