FPC005 - Estate and Succession Planning - Kaplan Professional

Assignment Task

Presentation

Your assignment should be presented in a clear and appropriate format, with all sources correctly referenced and cited. You are required to:

• Structure a clear response to each question, using headings if required
• Number questions (including sub-questions) and pages
• Use the correct font style and size
• Ensure tables or graphs are clearly labelled and readable
• Clearly set out calculations or workings, where they are required
• Adhere to the assignment word limit
• Cite sources and provide a reference list at the end of your assignment. It is recommended to use Kaplan Professional’s preferred referencing style, Harvard (see Kaplan Australia: Harvard Referencing Guide, available from the ‘Build Your Skills’ hub in KapLearn), but the consistent application of any other referencing style will also be accepted.

Case study

A new client, Christine Jones, has come to see you on referral from her solicitor. She is concerned that her marriage is in trouble and is seeing the solicitor to help her understand her legal position and options should she decide to separate and divorce her husband, Norman. In the meantime, she is worried about what would happen to her young son if she were to die or become incapacitated. She has come to you to get a clearer picture of her financial position and how it impacts on her estate plans.

Christine’s personal and financial situation

Christine (aged 38) is the second wife of Norman (aged 61). Together, they have a son — Cody (aged 6). Norman was previously married to Barbara, from whom he is divorced and completely estranged.

Professionally, Norman is an entrepreneur with a successful history in film and television production. When Norman was in his early 50’s he sold his post-production business to an international company for a significant sum, and bought his own vineyard and winery in the Hunter Valley, NSW, taking the title of managing director. Christine works as the marketing manager of the winery, focusing on expanding the winery brand. While Norman and Christine both work for the winery, they both work remotely from Sydney. Norman has three (3) children Cody with Christine; and Susan and Kevin with Barbara. The individual circumstances of Norman’s children are as follows:

• Cody (aged 6), is in his first year of school. Cody has Down syndrome. While he is currently healthy and is in a primary school catering to children with special needs, he has mild learning difficulties and may develop health issues in the future, which would restrict his employment options.
• Susan (aged 32), was working in finance as an analyst, but is presently a stay at home mum living in New York. She is in a de facto relationship with Sam, a successful surgeon from New York, and they have a son Brock (age 3). Norman found out Susan was made redundant a year ago, and she is presently unemployed. Although her needs are well catered for by Sam’s income, she sometimes asks Norman for small amounts of money, and Christine suspects she may have a gambling addiction.
• Kevin (aged 34), manages Norman’s winery. Norman intends for him to take over ownership of the business eventually. Kevin is married to Terry, whom Norman adores, and who also runs aspects of the business. Kevin and Terry have two children — Gia (aged 4) and Dion (aged 1). Kevin and his family live on the vineyard and do not pay any rent.

Christine and Norman live in Mosman in Sydney in the home they bought five years ago for $5.5 million. She says she’s not sure of its current value but is confident that ‘we bought it really well and that the market has shot up’. On the back of his new-found wealth, Norman made a number of other property purchases. Two years ago, Norman and Christine bought a unit in Queenstown, New Zealand at a total cost of $1.5 million. Norman was insistent as it was on his ‘bucket list’ to have his own ski lodge and he spent several weeks there the winter after they purchased it. It is rented out the rest of the time.

They also have a holiday unit in Noosa that is let out as a short-stay rental property most of the year, although their friends and family stay there from time to time. Fifteen years ago, Norman bought a unit in Coogee under Kevin’s name to take advantage of the government’s first homeowner’s grant. Kevin lived there for a couple of years but since moving to the vineyard he and his family leave it vacant and only use it on occasional weekends by the beach.

Norman also bought a property in Bondi with the intention that Susan would live there. She lived there for a couple of years before moving overseas with Sam and it has been rented out since.

The vineyard and winery

Norman is the managing director and maintains an active, hands-on full-time involvement. Christine is responsible for all marketing activities, mainly by promoting the brand in Sydney and trying to win contracts with liquor wholesalers. Kevin’s role as general manager is to run finances, operations and human resources. Christine and Kevin both believe that they are second in charge in the business and frequently clash on business-related matters. Norman wishes Christine would make more of an effort to get along with Kevin. Christine wishes Kevin had a bigger vision for the business.

Norman’s family trust

Christine is aware that Norman has a family trust and that, from time to time, Norman distributes money to his children and grandchildren. Christine has received money from the trust when Cody was younger and she was only working part-time, but not in the past two years. She does not have the full information about the assets in the family trust or their value. However, she is aware that the family trust owns the vineyard and the winery’s buildings that the business leases. She also knows that the family trust has a significant loan that was taken out for operating expenses

Christine’s concerns Christine has a number of concerns about her situation:

• Christine believes that Norman had been content to just live together and only married her because they had Cody. She is not significantly older than the children from his first marriage (who do not like her). Apart from Cody and the winery business, she and Norman do not have a lot in common. Christine loves her home and social life in Sydney and Cody is happy in his school. However, Norman has been talking about ‘slowing down’, selling the Sydney home and putting most of the proceeds into the family trust or winery business and building a new home close to the vineyard.
• As Norman was busy building his wealth, he was not able to spend much time with Kevin and Susan. However, he has been trying to make up for that and spends as much time with Cody as he can. Though he is a caring father, Christine has noticed that Norman frequently compares Cody’s development milestones and achievements unfavourably with those of Kevin and Susan, and also to his grandson Brock, with whom he communicates via video streaming. She is sure Norman loves Cody but is worried about how he would treat Cody if she was not there.
• Recently, Christine found some bank statements of Norman’s that were addressed to a post office box in Mosman. She saw that Norman has been transferring $2,000 a month to Freda Sanders for some time from a personal bank account she did not know he had. Freda (aged 29) is a former employee of the winery. While her path crossed with Freda’s at the winery, Christine learned that Freda is a single mother with a two-year-old daughter, Celeste, and that they currently live in the Hunter Valley. She suspects Norman could be Celeste’s father and is the reason why he wants to move.
• Christine believes she has made a significant contribution to the rising profile of the winery business and feels she is being ‘cut out’ of its future by Norman. If anything were to happen to Norman, she is certain Kevin would terminate her employment once he took over ownership of the business.
• She is not sure if she should be worried about being personally liable for the family trust’s debt if something were to happen to Norman.

Christine’s current estate arrangements and objectives

• When Cody was born, Christine was worried about making provisions for him if she or Norman died. They both made wills using will kits. They were living together at the time and married when Cody turned two years old. Norman and Jessica (Christine’s sister) are the executors of Christine’s will. Christine and Kevin are the executors of Norman’s will.
• Christine’s will leaves everything to Cody. Norman’s will leaves $1 million and a life interest in their Mosman home to Christine. On Christine’s death, he directs that the home be sold and the proceeds, along with the rest of his assets, be split equally between the three children. Christine is not happy about the allocation of Norman’s assets to her. She once overheard Norman telling a friend that Christine is still young, and he does not want to fund the lifestyle of any of her potential future partners.
• Christine has not made any beneficiary nominations on her superannuation fund and to her knowledge, neither has Norman.
• Christine does not have an enduring power of attorney.
• If she were to die, Christine would want Cody to receive all her assets. However, she is concerned for his future and would want her sister Jessica to manage things for him.

Question

1. Based on the information in the case study above, and assuming Christine and Norman remain married, what are the key risks to the achievement of Christine’s objectives if she were to die? In your answer, consider the following:

(a) Refer to the fact-find’s list of personal assets and Christine’s superannuation information. Explain which assets would (or would not) form part of Christine’s estate (use the table format provided below, adding more rows as required.

(b) What would be the consequence of her will being found to be valid or invalid, and what would the implications be for managing her estate?

(c) Who are potential claimants on her superannuation fund, and the tax status of any lump sum benefits that could be paid to them from the fund?

2. Explain to Christine the purpose of an enduring power of attorney. Provide three (3) risks she faces without one.

3. Norman’s comments about ‘slowing down’ and buying the ski chalet being on his ‘bucket list’ have prompted Christine to ask you what impact Norman’s death would have on her. In your answer consider the following:

(a) Based on the fact-find, determine and justify which of Norman’s personal, trust and business assets and liabilities are (or are not) likely to be inherited by Christine (use the table format provided below, adding more rows as required).

(b) What is the validity of Norman’s will, implications for control and potential claims on his estate?

4. Based on your analysis of Christine’s circumstances, provide your recommendations on how she can achieve her estate objectives and explain how they will put her in a better position. In your answer, consider:

(a) implementing appropriate estate planning documentation

(b) changes to assets and ownership

(c) the role of insurance and superannuation

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