FPC005 Estate and Succession Planning - Assignment 2: Case Study

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Assignment 2 details

  • This assignment covers Topics 1 to 8 and accounts for 40% of your final grade.
  • There is one (1) case study with three 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 2 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.

Instructions to students

There is one (1) case study question in this assignment.

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

Case study

You are a financial adviser and your clients of five years are Norman Jones (aged 64) and his son, Kevin Jones (aged 37). You receive a call from a distressed Kevin, who advises you that Norman has suffered a massive stroke leaving him in a coma from which he is not expected to recover. You have met Kevin with Norman several times and are aware that Kevin holds Norman’s enduring power of attorney (both medical and financial). Kevin asks for your help in getting up to speed with his father’s financial position. He asks to meet with you and Brenda Parisi, Norman and Kevin’s solicitor, who you also know very well. In preparation for your meeting with Kevin, you review your records.

Norman’s personal and financial situation

Norman divorced his second wife, Christine (aged 39) four years ago, which included finalising a property settlement. Apart from Kevin, Norman has three other children:

  • Susan (aged 35) is Kevin’s sister – they are both the children of Norman’s first marriage to Barbara. Susan is a successful neurosurgeon working in private practice in Melbourne. Following the breakdown of her relationship with her de facto partner, Sam over his refusal to address his alcoholism, she and their son, Brock (age 8) returned to Australia after living in New York for years. Susan’s break up with Sam was bitter and she had to agree to a large financial settlement with Sam for him to agree to Susan relocating with Brock. She is renting and slowly rebuilding her finances but would love to purchase a home for security for herself and Brock.
  • Cody (aged 11) is Norman’s child with his second wife, Christine. Cody has Down Syndrome. While he has mild learning difficulties, he has received additional support and is doing well in school. However, it is possible he may develop health issues in future and may have restricted employment options.
  • Celeste (aged 6) is Norman’s child with Freda (aged 34), the result of a brief affair while Norman was married to Christine. Norman and Freda never lived together and Freda and Celeste moved to New Zealand with her current partner when Celeste was two years old. Norman voluntarily provides financial support for Celeste. Celeste believes that her mother’s current partner is her father. Only Christine and Norman know Celeste is his child, and Norman has been adamant that no one else in the family should know about her.

Norman’s winery 

Norman is the Managing Director of Normandy Wines Pty Ltd, a Hunter Valley winery. Kevin’s role as General Manager was originally to run finances, operations and human resources. However, over the past five years as Norman became less ‘hands on’ with management of the winery, Kevin has taken on more and more of the management responsibilities. The winery is well insured with business insurance and Norman 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.

Following his divorce, he moved to a property on the winery grounds. To fund the property settlement with Christine, he sold several properties.

Under Norman’s will, he appoints Kevin as the director of Normandy Wines Pty Ltd.

Norman’s family trust

Norman is the sole trustee and appointer of his family trust. Under the trust deed, Kevin is appointed sole trustee with the power to continue the trust or wind-up it up and distribute the proceeds, as he sees fit, in the event of Norman’s death or incapacity. However, while Norman has told Kevin he will become the trustee, Kevin does not know the financial position of the trust.

The family trust is a discretionary trust. Norman has distributed income to his grandchildren and two younger children from time to time. In particular, Norman’s monthly payments to Freda to support Celeste come from the family trust.

The family trust owns the winery’s land and buildings which it leases to the winery, and there is also a large loan.

Norman’s current estate arrangements and objectives

  • Norman has always told his ex-wives and Kevin and Susan that he loves all his children equally, and would treat them fairly under his will.
  • After his divorce and property settlement was finalised, Norman created a new will. He made a video to be shown when his will was being read. In it, he explains that he believed he had made generous provisions for his ex-wives Barbara and Christine, as well as Cody (who will benefit from Christine’s estate) but was leaving each of his previous spouses a cash bequest of $10,000 as a goodwill gesture from his ANY bank account. You are aware of the will and its contents, and also what Norman discusses in the video.
  • In the video, Norman also acknowledges that Celeste is his daughter and apologises to her and his other children for keeping her existence a secret. He tells Celeste he regrets not being part of her life but agreed with Freda that she deserved to grow up without the burden of family drama as there was between Christine and his older two children. While he has provided regular financial support since her birth, he is leaving her the ANY bank term deposit when she turns 18 to give her a good start in her adult life.
  • As Kevin will inherit the winery on Norman’s death (transfer of shares under the buy–sell agreement in exchange for a life insurance policy on Norman’s life, owned by Kevin), Norman is leaving Susan the Noosa unit, his shares portfolio, and his Bitcoin
  • Many years ago, Norman bought a unit in Coogee for $900,000 in Kevin’s name. Kevin lived in it for two years and it has been rented out ever since.
  • The balance of Norman’s estate he leaves to the Charles Sturt University to establish a scholarship grant for high achieving students of wine making.
  • Norman has a valid binding death benefit nomination on his superannuation fund in favour of Kevin.

Kevin’s personal and financial situation

Kevin is married to Terry (aged 35) and they have two children – Gia (age 9) and Donald (age 6). He and his family live on a house on the property. Kevin earns a very good income from the winery (salary plus bonuses) giving them a very comfortable lifestyle; however, they do not save much. Kevin has always viewed the winery as the source of his family’s financial security. Terry is a full-time homemaker and both children are in private schools. As Kevin has taken on more responsibility at the winery, he has spent less time with the family. Prior to Norman’s stroke, Terry has been pressuring Kevin to either get Norman to resume some of his responsibilities and ease Kevin’s workload or to resign and move the family back to Sydney closer to her family.

They have a joint savings account with Auz Bank with an average balance of $50,000, and their Acme Superannuation Funds (retail funds) (Kevin - $450,000, Terry - $250,000). Kevin also owns the Coogee unit (now worth $1,500,000) in his sole name.

Question 1         (25 marks | Word limit: 800 words)

Norman’s medical condition is now confirmed to be terminal. You have confirmed that Kevin has the power to act on Norman’s behalf under the enduring power of attorney. He is requesting full details of Norman’s finances. He has also requested a copy of Norman’s will from his solicitor. You realise that Kevin will become aware of the existence of Celeste, the distribution of assets under the will, and the financial position of the family trust. You prepare yourself for the meeting by considering the potential for Kevin to be conflicted in his role.

  • Differentiate Kevin’s duty towards Norman in how he deals with his assets under the roles of an enduring power of attorney holder and an executor. (5 marks)
  • Provide an example of an unconscious bias that could influence Kevin to make decisions contrary to Norman’s estate objectives and how he could rationalise them, in relation to:
  • Kevin
  • Susan
  • Cody
  • Celeste

(16 marks)

  • Provide an example of how a conflict of interest could arise between your best interests duty to Norman and Kevin, and discuss what would guide your conduct. (4 marks)

Question 2         (25 marks | Word limit: 700 words)

Kevin has met with you and Brenda. Brenda has explained his current duties as an enduring power of attorney holder. She has also provided Kevin with a copy of Norman’s will and briefly explained his obligations as an executor for when the time comes. Kevin has questions for you regarding some of the assets and liabilities.

  • When Norman dies, what does this mean for the family trust loans, and what decisions will Kevin need to make? (8 marks)
  • What are Kevin’s options in relation to receiving Norman’s superannuation fund, and the tax (Show workings) Assume Norman passes away on 1 February 2023, his date of birth is 1 December 1958, his service period commenced on 1 December 1980, and his retirement date would have been 1 December 2023. The taxable component of his superannuation balance is 50%, with a tax-free component of 50%. The insurance benefit is $600,000. The trustees of the fund have claimed the future liability to pay benefits as a tax deduction. Kevin has private health cover. (10 marks)
  • Excluding the family trust, and assuming no challenges to Norman’s will or additional estate costs, what is Kevin and Terry’s likely financial position on finalisation of the estate. (7 marks)

Question 3    (45 marks | Word limit: 1000 words)

Since Norman’s death two years ago, most of Kevin’s time has been spent in managing the estate and the winery and looking after his family. However, now that the estate has been finalised, he is meeting with you to “start sorting out his personal and business affairs”.

  • Explain to Kevin the benefits of creating his business succession plan (3 marks) and four aspects of what is involved in developing it (8 marks). (Total 11 marks)
  • Briefly outline two key personal risks and two key business risks he needs to address in his plan. (12 marks)
  • Discuss four (4) types of personal insurance cover that may need to be considered to address his personal risks (5 marks) and business risks (5 marks). (You do not need to address general insurances such as business interruption or provide actual amounts of insurance) (10 marks)
  • Kevin would like to start investing the funds he received from Norman’s estate. Discuss three (3) ownership structure options which offer some protection from creditors in the event of him becoming insolvent or What are the limitations of these structures? (12 marks)

Solution

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