TAXA3006 Estate Planning

Case Study

Jess (aged 57) and Morgan Bentley (aged 63) have been in a de-facto relationship since 2004:

Between them they have the following children:

• Nat (aged 32). Jess’s oldest child, is a flight attendant and is in a de-facto relationship with Avery. Nat is based in the United States, but stays with Jess when flying the US/Australia route.
• Daryl (aged 14) is Nat’s child from a teenage romance. Under Family Court orders, Daryl cannot leave the country to live with Nat, but Jess has custody as Daryl’s other parent is dealing with substance abuse and mental health issues.
• Sydney (aged 27), Morgan’s oldest child, is currently on extended parental leave caring for three year old twins. Sydney’s partner Taylor disapproves of the situation with Daryl, which has caused some tension within the family.
• Charlie (aged 16) is the child of Jess and Morgan. Charlie is still at school but has shown a talent for art and is planning a career as an artist. The family joke that Charlie would “starve in an attic” in pursuit of that dream.

Jess has a thriving business as a picture framer, currently operating from premises in North Perth as a sole trader. Jess has decided to retire early to enjoy a post-COVID lifestyle. There is a history of early on-set dementia in the family.

Jess has received an offer to purchase the business as a going concern, including the lease on the business premises and all equipment and stock. Because of difficulties valuing the business following the uncertainty of the last two years, the sale price is based on a lump sum of $500,000 plus 10% of the turnover for the next five years.

Morgan is self-employed as a bookbinder, averaging a net income of $120,000 pa, and has no current plans to scale back work.

The assets held by Morgan and Jess are:

The following life insurance policies are also in place:

• Each holds a life policy for $500,000 on the life of their spouse; and
• Each has taken out a policy of $1m to be shared equally between “their children” (as worded in the insurance contract).

Their superannuation accounts are held in one of the better-performing industry sector funds, and they are happy with the returns. Jess does not intend to draw down on superannuation for at least the next five years.

Required:

Morgan and Jess are seeking advice on how to address their estate planning needs. Prepare a letter of advice addressing the following issues:

1. Advise Jess and Morgan on the distribution of assets on the death of either of them, specifically:
   1. The treatment of each asset if
      1. either dies intestate and
      2. they both die intestate in the same incident; and
   2. Assuming that they now draft wills, what issues need to be considered and what steps should they take in relation to those issues.
2. What other matters should Morgan and Jess address in an Estate Plan? What recommendations would you make in respect of other documentation that is required?
3. How will the proceeds of the sale of Jess’s business be taxed?

You should identify any assumptions that you make in respect of the facts provided.