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Balancing tax planning and other priorities in estate plans

Estate planning is a complex and very personal process, involving many difficult decisions on how and when to pass along assets to a spouse, children, other family members, friends, or charitable organizations. In addition to these considerations, tax planning is also often a major concern.

Prudent tax planning can preserve the value of an estate, passing more assets down to the next generation and less to the IRS. This issue recently came up as actor James Gandolfini's will was admitted to probate and made public. His estate planning choices led to signficant criticism from experts, with many saying that he did not handle his taxes prudently. However, the structure of the gifts in his will indicates that he likely had other priorities in mind, such as being sure to provide adequately for his oldest child as well as his current wife and the children he had with her.

One aspect of the will that has been particularly controversial was the overall share that Mr. Gandolfini left to his wife. As many people know, gifts to one's spouse can pass without any tax liability no matter how large the amount. As a result, many people leave all or a majority of their estate to their spouse and ask that the spouse continue to provide for the rest of the family. However, the modern reality of multiple marriages and children from various relationships means that this option might work out perfectly, particularly when a spouse re-marries or children from a previous marriage fall out of touch with a step-parent.

Looking at the situation from that perspective, Mr. Gandolfini may have been well aware of the tax consequences when he chose to leave only a small portion to his wife while providing specific gifts for each of his children individually.

As this case illustrates, there are pros and cons to every estate planning decision and it is important to be aware of all of the options and make an informed choice.

Source: CNBC, “Gandolfini’s will a case study on what not to do,” Kelley Holland, July 26, 2013

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