FPC005 Estate and Succession Planning - Assignment 1: Case Study Questions

Assignment 1 details

• This assignment covers Topics 2 to 5 and accounts for 35% of your final grade.
• There is one (1) case study with four related questions in this You should answer all aspects of the case study.
• Marks will be awarded for referencing and presentation.
• Your overall mark for this assignment will be rounded to the nearest whole number.
• Refer to the Criteria-Based Marking Guide for guidelines on what is expected for each question.
• Full workings must be shown for all calculations. Show all calculations in the text of your assignment and not attached as an Appendices to the assignment will not be read.
• Indicative weightings are noted beside each question. Use these weightings to assist you with your allocation of time and The weightings indicate the relative importance of each question.
• State all assumptions used in providing your answer.

Assignment 1 referencing and presentation (5 marks)

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 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 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.

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Instructions to students

There is one (1) case study with four (4) related questions in this assignment.

Please read the case study and instructions carefully and address all aspects of the case.

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 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 34) is the second wife of Norman (aged 59). Together, they have a son — Cody (aged 6). Norman is an entrepreneur with a successful history in film and television production. A couple of years ago, he sold his post-production company, and is now the managing director of his own winery. Christine works as the marketing manager of the winery.

They live in Mosman in Sydney in the home they bought five years ago for $3.5 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’.

A year ago, Norman and Christine bought a ski chalet in Japan at a total cost of $1.2 million. Norman was

insistent as it was on his ‘bucket list’ and he spent several weeks there the winter after they purchased it. It is rented out the rest of the time.

Norman has a holiday unit in Noosa that he originally bought with this first wife, Barbara. The unit is rented out most of the year although family members stay there from time to time.

Norman contributed a significant amount to both his and Christine’s superannuation funds following the sale of his post-production business. Her current balance is $900,000 and she believes Norman’s is

$1.2 million.

Normans’ children are as follows:

With Christine

• Cody (aged 6), is in his first year of school. Cody has been diagnosed with downs syndrome. While he is currently healthy and is in a mainstream primary school, he has mild learning difficulties and may develop health issues in the future, which would restrict his employment

With Barbara

• Susan (aged 30), is a successful neurosurgeon working in private practice. She is in a de facto relationship with Sam and they have a son Brock (age 3). They moved overseas to Sam’s home town (New York) after Susan completed her training. This is also where Brock was born. Norman found out Sam has a drinking problem and was fired from his job as an investment banker a year ago because of it. He is now a stay-at-home
• Kevin (aged 32), works at the winery owned by Norman. He loves the work and the winery and Norman intends for him to take over ownership of the winery eventually. Kevin is married to Terry, whom Norman adores. Kevin and Terry have two children – Gia (aged 4) and Donald (aged 1). Terry and Kevin live in a house on the winery and do not pay any rent.

Ten years ago, Norman bought a unit in Coogee and registered it in Kevin’s name to take advantage of the government’s first homeowner’s grant. Kevin lived there for a couple of years but now rents it out as he lives at the winery. 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 winery

Norman is the Managing Director and maintains an active, hands-on full-time involvement with the winery. Christine is responsible for all marketing activities. 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.

While not directly involved, Christine is aware that the winery is well-insured with business insurance and Norman has recently put in place key person insurance for himself and Kevin with a formal buy-sell agreement. They each own a life and total and permanent disability insurance policy on the life of the other. Premiums are paid for by the business and the agreement stipulates that the deceased’s legal personal representative will transfer ownership of the business to the survivor, with the survivor in turn paying the proceeds of the life insurance to the deceased’s estate.

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 winery’s land and buildings which it leases to the winery, and that the family trust took out a large loan.

Christine’s concerns

Christine has a number of concerns about her situation:

• Christine believes that Norman had been content to just live together and they only married because they had Cody. She is not much 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 the proceeds into the family trust or winery business and living on a property there.
• 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. Christine has noticed that Norman frequently unfavourably compares Cody’s development milestones and achievements with those of Kevin and Susan. She is sure Norman loves Cody but is worried about how he would treat Cody if she was not
• Recently, Norman’s laptop died and he asked to use Christine’s laptop. He did not log out and so Christine saw that Norman has been transferring $2,000 a month for the past twelve months from a personal bank account she did not know he had to Freda Sanders. Freda (aged 29) is the daughter of Norman’s best friend, Robert, who died a few years ago. Christine has only met her a few times in the past but knows that Freda has a good relationship with Norman, Susan and Kevin. She asked a friend to check Freda’s social media page (Christine was blocked) and learned that Freda is a single mother with a one-year-old daughter, Celeste. They currently live in the Hunter Valley. She suspects Norman is the father and this is why he wants to
• Christine believes she has made a significant contribution to the winery business’s success and feels she is being ‘cut out’ of it by Norman’s arrangements with Kevin. If anything were to happen to Norman, she is certain Kevin would find a way to terminate her employment.
• She is worried about her exposure to the winery’s debt.

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 two years later. Kevin as well as Jessica (Christine’s sister) are the executors of Christine’s will. Christine and Kevin are the executors of Norman’s
• Christine will leave everything to Cody. In Norman’s will, he leaves a $1 million and a life interest in their Mosman home to Christine. On Christine’s death, he directed that the home be sold and the value split equally between the three children. He left the rest of his assets in equal proportions to his three Christine is not happy about the low cash allocation to her. She once overheard Norman telling his best friend that Christine is young and he did not want to fund some future partner’s lifestyle when ‘he is not around’.
• Christine has not made any beneficiary nominations on her superannuation fund and to her knowledge, neither has
• Christine does not have an enduring power of
• If she were to die, Christine would want Cody to receive all her assets. However, she is concerned for his future health and employment outlook and would want Jessica to manage things for him until he was capable of making good decisions for himself.

You captured the following information in Christine’s estate planning fact find.

Question 1

Based on the information in the case study above, what are the key risks to the achievement of Christine’s

objectives if she were to die. In your answer, consider the following:

• From the fact-find, which personal assets would or would not form part of Christine’s estate (use the table format provided below, adding more rows as required)? Provide a brief comment on the (10 marks)

• What would be the consequence of her will being found to be valid or invalid and implications for managing her estate? (10 marks)
• 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? (5 marks)

Question 2

Explain to Christine the purpose of an enduring power of attorney and provide three (3) risks she faces without one. (10 marks)

Question 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:

• 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). (10 marks)

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

(15 marks)

Question 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:

• Implementing appropriate estate planning documentation (15 marks)
• Changes to assets and ownership (10 marks)
• The role of insurance and superannuation (10 marks)

Notes:

• Recommendations are not required to be in the form of a statement of advice.
• Dollar amounts are not required to be provided for recommended strategies – e.g. if recommending a type of insurance, the sum insured is not required.
• You are not expected to provide legal advice.
• You are not expected to provide detailed solutions that would be beyond the scope of her financial planning authorisation.