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James Gandolfini's Will Reflects A Parent's Dilemma

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Lawyers have pointed to the tax mistakes in James Gandolfini's will. He might have been more concerned about the messages it sent to his children.

Ever since the will became public last month, tax pros have had a field day commenting on what they consider to be faulty planning that will cause Gandolfini's heirs to pay more estate tax than necessary. Much of this analysis is speculative, since the man who played Tony Soprano probably transferred significant sums in the other perfectly legal, but private, ways.

Retirement accounts and life insurance, for example, are not covered by a will. And like other wealthy people, Gandolfini may have set up trusts late last year to take full advantage of the $5.12 million lifetime exemption amount that was scheduled to decline at year end until Congress passed a new tax law at the eleventh hour. The lifetime limit is now $5.25 million. (See my post, "After The Fiscal Cliff Deal: Estate And Gift Tax Explained.")

But Gandolfini addressed another issue in his will that for many people is more important than taxes: When leaving money to children, is it better to be equal or to be fair? It's a subject that some parents may even talk about with their adult children at family gatherings this summer.

In Gandolfini's case the dilemma was complicated by the fact that he had been married twice, with a child from each union. His son Michael, from his marriage to Marcy Wudarski, was 14 when Gandolfini died suddenly in June at age 51. At the time of his death he was married to Deborah Lin. The couple's daughter Liliana was born two months before he signed the will; her birth likely motivated him to redo his estate plan.

Gandolfini seems to have made an effort to provide amply for both children, but they may not wind up with equal amounts. Under the will, Michael will receive all his father's clothing and jewelry; and have the right of first refusal to buy his father's New York City condominium and the associated parking spot (in New York such spaces command a premium). He is also the beneficiary of a $7 million life insurance policy owned by a trust, so this money will not be subject to estate tax. The will only hints of this arrangement--saying Gandolfini had provided for Michael in other ways--but court papers refer to it specifically and indicate that it was required as part of the divorce settlement with Wudarski.

Liliana, too, may be the beneficiary of a trust. But unlike a will, trusts are not public documents, so we would not normally find out about them. Under the will, she is entitled to 20% of the residuary estate--what is left after estate expenses, creditors and taxes have been paid and gifts of specific items or specific sums of money have been satisfied. Court documents value property covered by the will at between $1 million and $10 million. The existence of substantial other assets not covered by the will (called non-probate assets) may or may not justify the widely reported estimates that Gandolfini was worth $70 million when he died.

For however much she inherits under the will, Liliana gets control over the money at age 21, which is sooner than many people think advisable. There's a good argument to be made that it would be better to wait until she's finished college; keep it in trust long-term to protect it from creditors and predators; or make gradual distributions starting at a specific age, so she can learn to manage money (or hire experts to do it for her).

There was also a house in Italy that Gandolfini wanted his children to share and keep in the family, according to his will. It is to be held in trust until they have both reached age 25, at which time they will own it outright, in equal shares. That could be a sticky situation for step-siblings who are far apart in age, but at least with respect to this asset Gandolfini treated his children equally.

Though blended families can be difficult to navigate, the question of whether to be equal or fair is easiest to resolve when children are young, as Gandolfini's were. It gets more difficult once they get older. At that point, how family members are treated in an estate plan, and whether some feel they were dealt an unfair hand, is a common source of discord.

Tempting as it may be to tailor your plan to the personalities, abilities and needs of individual family members, remember that disparate treatment, particularly of children, can rekindle old rivalries or ignite new ones. Whatever your justification, you might leave children thinking, “Why did he do that? Dad didn’t love me as much.” By treating all your children (if not all your descendants) equally, you improve the chances that they will peacefully coexist.

That said, it is reasonable to take note in your planning of children’s career decisions, choice of a spouse and all the unforeseeable events that a parent witnesses in a child’s life. If you encouraged your son to follow his heart and become a schoolteacher, are you penalizing him by leaving him the same size inheritance as his younger sister, who made a fortune when she sold her company?

Assuming you choose to treat everyone equally, you may want your estate plan to even out certain disparities that have arisen during your life. For instance, if you lent money to one child for a business venture and were never repaid, you could leave that child proportionately less. If one of your children never married or had children, and you have set aside college funds for grandchildren, you could give a larger inheritance to the child who is not a parent (though you should note, and hope all parties recognize, that a child with grandchildren and college costs needs more funds).

Rather than leaving your children (or grandchildren) guessing about the motives behind all these difficult decisions or feeling slighted, you may want to spell out your reasoning in your estate planning documents. Having a frank discussion beforehand takes a lot of courage, but it gives all the affected parties a chance to be heard and can clear up misunderstandings – yours and theirs.

While parents have no obligation to change an estate plan after hearing a child’s preferences, disclosing what they plan can help refine their approach. For example, maybe you are thinking of leaving one child a larger inheritance than the others because he has more children. By sharing these details with this child, you might learn that he would rather receive the same amount as his siblings, rather than face their wrath.

Above all, explaining the principles that have influenced your decision could make them easier for children to accept. For instance, don’t assume it’s obvious that you left the summer home to one child because he used it most.

Of course, parents who share their thinking risk hostility from adult children who do not like what they hear. To reduce the possibility of a hostile audience, parents may talk to each child separately, rather than addressing them as a group. Afterward, ask each child, “What do you think?” You may be surprised to find that adult children have great ideas and interesting opinions.

 Also On Forbes

Why Family Wealth Is A Curse

Nice Girls Talk About Estate Planning

12 Estate Planning Questions That Might Make You Squirm

Archive of Forbes Articles By Deborah Jacobs

Deborah L. Jacobs, a lawyer and journalist, is the author of Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide. You can follow her articles on Forbes by clicking the red plus sign or the blue Facebook “subscribe” button to the right of her picture above any post. She is also on Twitter and Google+