Jeff Baskies on Why Do Celebrities Still Use Wills: Advisors Please Convince Celebrity Clients to Draft the Dispositive Aspects of their Estate Plans in Revocable Trusts Steve Leimberg’s Estate Planning Newsletter

“Spanish author George Santayana wrote: ‘Those who cannot remember the past, are condemned to repeat it.’ And so we see the past repeat with celebrity estate plans as highlighted by the public debate about James Gandolfini’s Last Will and Testament.

While we do not know much about Mr. Gandolfini’s estate, we are left to wonder why any part of his dispositive estate plan was left to public inspection via his will. Had the dispositive aspects of his estate plan been in a revocable trust and had his will simply ‘poured-over’ to the trust, there would be nothing public for us to comment upon, and thus no public controversy over these fundamentally private issues.”

We close the week with Jeff Baskies’ commentary on the advantages of using revocable trusts when preparing estate plans for clients in the public eye.

Jeffrey A. Baskies is a Florida Bar certified expert in Wills, Trusts, and Estates law. He practices at Katz Baskies LLC, a Boca Raton, FL, boutique trusts & estates, tax & business law firm. In addition to over ten dozen published articles, he is the author of ESTATE, GIFT, TRUST, AND FIDUCIARY TAX RETURNS: PLANNING AND PREPARATION (West 2013). He can be reached at www.katzbaskies.com.

Here is his commentary:

EXECUTIVE SUMMARY:

In November 2008, I wrote a commentary for LISI entitled “Why Do Celebrities Still Use Wills” (Estate Planning Newsletter #1367). The gist of that commentary was to encourage those who draft estate plans for celebrities to put their clients’ dispositive plans in the form of revocable trusts in order to shield the privacy of their clients and their clients’ loved ones, after the celebrities die.

Apparently the lessons addressed 5 years ago in LISI, and in other forums by other authors, have not been “remembered” by all.

This commentary is written to reinforce that advice and to remind advisors how “the vultures” will circle after the death of a celebrity. The lesson is taken from the recent fixation on the estate plan of the actor who played mob boss extraordinaire Tony Soprano, James Gandolfini (as his advisors apparently call him Jim I will impertinently do the same). His case serves as a stark reminder of this phenomenon.

To put it simply: there’s no reason you or I should know so much about Jim Gandolfini’s estate plan, including his wishes for his friends, wife, children and sisters.

While some/many have focused on alleged “mistakes” in the Jim’s planning, I won’t focus on them or condemn the drafter for the terms of the will. I just don’t know enough to comment, really.

However, other than a client’s obstinate refusal to accept advice of counsel (which is still a possibility in this case – we don’t know), looking at the media scrutiny of the past few weeks, it seems drafting a pour over will to a revocable trust (that contained the dispositive plan) may have protected Jim Gandolfini and his family from this intense focus.

I very much enjoyed reading Bruce Steiner’s LISI commentary “Lessons from James Galdofini’s Will” in Estate Planning Newsletter #2114, and I agree that estate planners can take certain lessons from Mr. Gandolfini’s will. However, to me the most important take-away is this: if you are preparing an estate plan for someone in the public eye, particularly if there are any potentially controversial aspects to the plan, draft the dispositive aspects of the celebrity’s plan in a revocable trust. If a simple pour over will is filed for probate, there is virtually nothing for the media to focus on.

FACTS:

In his commentary, Bruce Steiner very clearly summarized the will of Jim Gandolfini, so I will not restate it.

Bruce also did an excellent job of highlighting certain lessons we as estate planners can take from reviewing Jim’s will. For example, Bruce highlights how the simplicity of Jim’s plan could lead to a number of problems including substantial additional estate taxes in the future due to its lack of trust planning (lack of a QTIP trust, lack of trusts for his children, and lack of trusts for his sisters). Using trusts for life for his sisters, for example, would use no GST exemption (they are in the same generation) and would have kept the assets out of their taxable estates when they die. Presumptively, this lack of planning may cost many millions (or tens of millions) in unnecessary taxes in the future. However, we don’t know what other planning may have been done or what discussions may have been had with the client. Bruce’s summary and his takeaways were expressed in a form so as not to criticized, and I will join him in not “piling on” criticism of the planner or the plan itself.

The key takeaway for this commentary is more simplistic: for celebrity clients we can put their estate plans in revocable trusts to avoid the very openness of their wills to scrutiny and the resulting public debate of their personal and private decisions.

COMMENT:

Will vs. Revocable Trust: Probate vs Non-Probate

As we know, wills are “ambulatory” documents that do nothing while clients are alive. They direct how clients’ estates are to be administered after death, but wills only become effective once admitted to probate (literally the court process of administering wills and estates). In most (if not all) states wills in probates are a public record available for inspection.

Revocable trusts can perform the same function as wills (direct the disposition of the client’s assets upon death), but because they are not required to be filed in a court, they add a level of privacy. Revocable trusts allow for management of the assets in the trust name by the successor trustee without involving a court.

In virtually all cases, clients who draft their dispositive plans in revocable trusts also have wills to administer assets left in their own names at death. These wills are often abbreviated and short, simply providing that any assets in the estates pour-over to the revocable trusts (hence, as we know, they are often called “pour over wills”). Thus, if a probate estate is opened, the only document available to public inspection is a simple will saying nothing about the disposition of the client’s assets.

Now there is a lot of misinformation published about probate, and there are thousands of “chicken dinner” programs dedicated to teaching how to avoid it. Primarily, the benefits of avoiding probate are: saving legal and administrative fees, quicker (hopefully) access to the deceased’s assets and greater privacy for the client’s estate plan. Saving time and fees are the primary benefits preached to the average client (for whom it is unlikely anyone is going to go to the courthouse and read their wills). These virtues are sometimes oversold, though, as in many states the post-death administration of a decedent’s estate may not be significantly more burdensome than a revocable trust administration, and there are certain benefits to having probates.

At its core, probate is just a court monitored process that allows for the gathering and administering of assets. It also provides for the appointment of an administrator (Personal Representative or Executor) who is empowered to deal with creditors (in a timely and organized manner) and taxing authorities. Having a court authorized executor to deal with income and estate tax issues is often very helpful. Moreover, having a creditor claim process can reduce the time for claims to be filed and provide finality and certainty to the administrative process that oftentimes trust administrations without a probate might lack.

Thus, it may be valuable to have a probate to orderly administer an estate, but that can be accomplished with a simple pour over will.

Lesson for Celebrity Clients

After his death on June 19, 2013, Mr. Gandolfini’s will was offered for probate. And almost instantly thereafter the internet and news publications were abuzz.

Early on July 3, the New York posted reported Jim’s will had been filed for probate on July 2 and briefly summarized its terms. After that, articles popped up all over. The Huffington Post wrote later that day as did Yahoo news and CNN posted an article on July 4 summarizing the will.

As we know, it didn’t take long for the commentaries to become critical. On July 5, Dareh Gregorian writing in the New York Daily News penned: “James Gandolfini will a tax ‘disaster,’ says top estate lawyer” (citing to discussions with William Zabel – certainly a nationally recognized leading estate planner). In the article Mr. Zabel is quoted as saying: “It’s a nightmare from a tax standpoint. … It’s a catastrophe.”

On July 9, LISI readers were learning the lessons from Jim’s will thanks to Bruce Steiner’s commentary.

On July 15, Fox business published an article entitled “Lessons Learned from James Gandolfini’s Will” noting some alleged mistakes in the estate plan.

On July 26, CNBC published Kelly Holland’s article entitled “Estate Planning Lessons from James Gandolfini’s Will” with the following derisive lead: “That the late James Gandolfini was a beloved actor is without question. Now that his will has been revealed, he has a new fan: the IRS.”

Even the fact that lawyers are debating the will itself became news. See Paul Sullivan’s July 19 article in the New York Times: “A Public Debate over the Wisdom of Gandolfini’s Will.” In that article, the author cited to several well regarded estate planners to debate the alleged problems with the will.

For example, why didn’t Mr. Gandolfini create a trust to protect his baby daughter (instead relying on a typical postponement of possession clause until age 21)? It would have seemed prudent to draft a trust that would protect her from herself, from her creditors and from a potential divorce, the commentary suggested. Speaking of trusts, as Bruce Steiner also noted, Sullivan’s article asked: why didn’t Jim put the shares passing to his sisters in trusts also to avoid estate tax when they die? This is potentially a huge tax savings opportunity missed. Also, Proskauer partner, Andrew Katzenstein, is quoted as saying: “They really messed up the disposition of the Italian property.” Due to Italian forced-heirship laws, he noted the purported gift of the Italian property into trusts may be ignored (at least as to 75% of the property, he says).

Interestingly, Mr. Sullivan also interviewed Roger Haber who was Jim Gandolfini’s lawyer and apparently was the draftsman of the will. Mr. Haber is also one of its executors – an issue over which there has been surprisingly little fanfare, although clients appointing their attorneys as executors and trustees has become a fairly hot ethics topic.

Apparently responding for the first time, Mr. Haber commented that the assumed size of the estate and the assumed tax bills may be incorrect. He also noted that Jim Gandolfini understood the difference between probate and non-probate assets, implying that many of the commentators who have questioned the quality of the legal work don’t know the full story. Mr. Haber was quoted as saying: “People don’t get it. There is no tax problem here. There is no planning problem here. This is a minor piece of the estate planning.”

Maybe that’s true. Maybe the tax planning was all accounted for. Maybe there is a funded revocable trust, for that matter. None of us has the information Mr. Haber has available to him.

However, even assuming Mr. Haber’s comments about the will being a small part of the estate plan, and assuming there are simple explanations as to the terms of the will as drafted, and accepting there is much we still don’t really know about Jim Gandolfini’s overall estate plan, this much appears clear: if Jim Gandolfini used a pour over will and put his dispositive plan in a revocable trust instead of a will, nobody would be talking about his estate plan. Thus Jim Gandolfini’s family – not to mention his own wisdom – would not be thrust into this negative limelight. Mr. Sullivan wrote:

The one thing Mr. Haber could have saved Mr. Gandolfini from was this column and every other article or blog written about his will. They would not have been possible if Mr. Gandolfini had had a revocable trust.

Conclusion

Bruce Steiner was undoubtedly correct in his LISI commentary that estate planners can learn valuable lessons from Jim Gandolfini’s will. However, the most important lesson may be that we shouldn’t be able to learn any valuable lessons at all from Jim Gandolfini’s will. His estate plan could have been kept private with a revocable trust.

I don’t know Mr. Haber and I certainly don’t mean to blame him for what he did (or for what his client may have made him do against his advice), but looking at the public scrutiny of the past few weeks, I assume Jim Gandolfini and his family would have been better served if the dispositive plan were drafted in a revocable trust.

As advisors, it seems the lesson to take away from this discussion is: if we represent celebrity clients (of any nature), it may feel like the entire world is in their business after they die. So we must take extra steps to protect their privacy and the privacy of those they wish to benefit by drafting their estate plans in revocable trusts.

While I have no aversion to probate, and I don’t think the take away for the average client (for whom Hollywood will not come running upon death) is to run out and draft a revocable trust (indeed a trust may be unnecessary for many clients), revocable trusts do have a place in our planning toolbox, particularly for clients with any degree of celebrity or fame.

When it comes to celebrity clients, let’s remember the lessons and not be condemned to repeat the past.

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!

Jeff Baskies

CITE AS:

LISI Estate Planning Newsletter #2124 (August 1, 2013) at http://www.leimbergservices.com. Copyright 2013 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.