Following is an estate plan designed for Wright Family. It consists of Margaret and Tom Wright, and their first child is about to come. Their objectives are: 1. To grow their wealth to ensure that their debt levels are reduced in the long term. 2. To have sufficient funding to ensure that their and their children’s needs are met, without both having to work full-time. 3. To ensure that their joint assets are protected as far as possible from any potential litigants. Thus, the aim of clients is to preserve and enhance the value of their estate and to avoid adverse consequences for their intended beneficiaries.
Circumstances Margaret and Tom Wright are bright young professional couple expecting their first child soon. They come from middle class background. Tom is a partner in a medium sized accounting firm and Margaret is a doctor working in a local clinic. Both are doing well in their fields as Tom is a partner in middle sized accounting firm and Margaret has prospects of becoming a partner in the clinic where she works. Tom is quite a bit older than Margaret and has an eight year old son from his ex-wife whom he has divorced.
As a result of his divorce, he has significant borrowings that funded his property settlement. Tom feels that his ex-wife and his son have been adequately compensated and now his key objective is to ensure that Margaret and their new baby are fully provided for in the event of his death. He wants to ensure that his former wife cannot overthrow any arrangement he establishes for the benefit of Margaret and his new child. Similarly, Margaret would like to ensure that Tom benefits from her assets, and not his former wife or his son.
They want to have sufficient funding to ensure that their needs and, most importantly, the needs of their children, are met. Ideally, they would like to be able to maintain a comfortable lifestyle without both having to work full-time. Funding Tom and Margaret Wright have certain assets which shall provide them funding for their estate. They are: Tom’s Assets: 1. Interest in his accounting practice ( through a discretionary trust which he controls solely), 2. The equity in which is funded through a life insurance policy on his life in the event of his death,
3. Some superannuation (a portion of which has been ‘split’ with his former wife), 4. The family home that he and Margaret share, that is mortgaged to about 80 per cent of its value, 5. A trust funded by an advance of his inheritance from his parents, that he uses to fund his child support payments. Margaret’s Assets: 1. Savings from her years of working, 2. An investment property with the inheritance she received from her parents. In addition to these existing funds, they can also look for increasing their funds in future.
This can be done by investing more in municipal bonds, real estate, modified endowments, stocks and mutual funds. Though the return through any investment varies, but careful planning and expert advice can yield expected results. Options and impediments From available facts, it appears that Margaret and Tom Wright are people of modest wealth who need to reduce taxes, protect their assets and secure enough to maintain their lifestyle. They are also at risk of litigation from certain parties and they would like to mitigate that risk.
Considering their circumstances and objectives, it shall be wise for them to formulate an estate plan before actually finalizing their funding and investment strategy. An ideal estate plan ensures speedy transfer of estate to the intended beneficiary without any hassles. It also maximizes the value of estate by minimizing taxes and other expenses. The idea is to take benefit of various exemption clauses present. A major tax that comes in case an estate is transferred to a beneficiary is the estate’s tax.
This can be reduced if the value of estate owned by the deceased is less at the time of his death. Most of the planning strategies achieve this by transferring the estate step by step by using annual gift tax exemptions in cases where a will is present. “Estate planning for people of modest wealth is challenging because they face significant death taxes but do not have such a large base of wealth that they can easily afford to make significant lifetime gifts or other transfers to reduce the taxes which will arise when they die. ”
Courtney from Study Moose
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