Assignment: Retirement and Estate Planning

Case Study Requirements

The Retirement and Estate Planning course has two estate planning cases. The following is Case #2: Post-mortem Estate Planning. The case study must have a reference page. There should be a minimum of four references for each case study. Total page count of each case study should be 3-5 pages (750 to 1,250 words). The case studies will be evaluated on the completeness of the recommended solution(s) and the quality of the written assignment using the Course Written Paper Rubric provided in the course syllabus.

Post-Mortem Estate Planning

It is not unusual for someone to to be upset about how assets are distributed. Many of these situations create disputes. The wise financial adviser and estate planner watches for the following situations.

1. Those in which family members with the same status will not be treated the same, as when one child receives a larger share than another child;

2. Those where a family member who might reasonably expect to benefit will receive nothing, as when a child is disinherited completely;

3. Those where a beneficiary may not like the way in which his benefits will be received, as when assets will pass to a tightly-controlled trust rather than outright to the beneficiary;

4. Those which involve a blended family, where there are stepparents and stepchildren; and

5. Those in which one or more family members are generally inclined to complain and create problems.

Financial advisers careful about aiding clients in passing assets directly to beneficiaries that have (1) drug or alcohol abuse, (2) spendthrift habits, (3) disabling conditions, which might create a need for needs-tested government benefits, (4) immaturity, or other personality factors that weaken the beneficiary's ability to properly handle finances.

Conversely, beneficiaries who have limits on their abilities to be self-supporting may have a real need to receive a larger share of inherited assets than a beneficiary who is well-to-do and successful. The client may wish to provide more to the relatives with greater needs.

Finally, your client may simply not wish to provide assets to individuals who have mistreated the client or from whom the client has long been estranged. If the client really prefers a plan, which creates a heightened risk of post-death disputes toone, which is less likely to result in such disputes, then the financial adviser should ensure that client's plan reflects the client's true desires and intent. However, the financial adviser should inform the client about the options available to help avoid or reduce the risk of post-death disputes.Often clients decide not to take any significant steps to avoid a post-death dispute and others will want to button up their plans as tightly as possible to avoid disputes. It is the job of the financial adviser to help the client decide whichapproach is best and meets his (or her) personal needs and desires.

Case Study: Financial Planning for Jane to Avoid Post-Mortem Disputes

Jane owns a home she purchased many decades ago just a few houses away from her childhood home. She also owns her childhood home, having purchased it from her parents via a family annuity prior to her father's death. Jane's daughter, Jill and Jill's two children live in "Momma and Daddy's house" (Jane's parents' home), paying Jane close to fair market rent. Jane lives in her own home. Her son, Dan, was recently living there with her, but has moved out to live with friends. Jane would like Jill to inherit Momma and Daddy's house, and she would like Dan to inherit her house. Dan and Jill are close and they like the idea of living near each other. Neither home has a mortgage. Jane intends to stay in her home for some time, but when she does decide to move to a retirement facility, Dan is prepared to move in and take over the home.

Jane has asked you, her financial adviser, to help her decide the best method for her children to inherit these two homes. Due to some other family land that may generate significant income (from oil and gas royalty rights), Jane is concerned about her estate tax situation. You have analyzed the potential income tax cost of losing the step-up basis on either or both houses in the estate.

1. How can you determine that Jane is competent to sign the estate planning documents?

2. Should the homes be put in a trust? Should the homes be put into two separate trusts?

3. If you were to recommend a trust(s) for the homes, what type of trust would you recommend? Should they be written for a certain term?

4. Should Jane consider using a fully funded revocable living trust instead of a will as her primary estate-planning document? Please provide your rationale.

5. Should Jane use an "Terrorem Clause" in her will or trust(s)?

6. Who should pay the real estate taxes and make maintenance improvements on each property?

7. Jane wants to know how she can lower her income liabilities.

A. What are your recommendations for the rental money Jane receives from Jill?

B. What are your recommendations for the royalties she receives from her other land

8. Can Jane make gifts to her children to lower her estate taxes? Please provide details about your recommendations and show your calculations.

9. What possible post-mortem disputes do you envision?