CASE ANALYSIS - Michael and Marie Cranston
Mike and Marie Cranston have come to you for assistance in developing an estate plan. From your initial meeting with them, you have gathered the following information.
Mike Cranston-
- 64 years old
- Retired president of a cosmetic supply firm
- Receives income of 5250 per month from Happy Heights Car Wash, an eight stall self-service car wash: site is suitable for conversion in storefronts and offices
- Wants to revise his 2005 will, which leaves the utility stock, the municipal bonds, and his automobile to his wife, Marie; the remainder of his estate is to be divided equally between son, Dean, and his daughter, Karey
- Feels that his 2005 win is inappropriate in light of the dollar amount that would pass to Marie and the hostility that exists between his children and Marie, their step mother
- In excellent health
Marie Cranston-
- 63 years old
- Works pan-time as a volunteer for the local United Way; has been a volunteer since 1997
- Inherited substantial property in 2002 upon the death of her father; invested her bequest in a portfolio of growth stocks
- Makes sizable annual contributions to United Way
- 2005 will leaves $200,000 to the United Way, with the remainder passing to Elena Cookston, her daughter from a prior marriage; if Elena fails to survive Marie, then the will leaves the entire estate to the United Way
- Handles the Cranston family finances
- In excellent health
Karev Cranston-Mitchell (Mikes daughter)-
- 38 years old
- Divorced; two children, 13 and 15 years old
- Writes Gothic romance novels and earns approximately $125,000 per year
- Currently negotiating film and television rights to several of her books for $250,000
- Has developed a strong investment portfolio
- Is in the 35% marginal tax bracket in 2015
- Is not interested in running the car wash
Dean Cranston(Mikes son)-
- 35 years old
- Married; one child; 2 years old
- Assistant manager at Discount World Department Store; annual salary $50,000
- Wife works part-time as a paralegal
- Filed for bankruptcy in 2012
- Manages Mike's Happy Heights Car Wash part-time
- Would like to purchase the car wash for development purposes if he could get financing; would develop the property if he were able to acquire it, and would buy out Karey's portion from her
- Is in the 15% marginal tax bracket
Marie's Prior marriage-
- Divorced in zoo3; one daughter, Elena Cookston
- Received settlement of 5150,000; invested in certificate of deposit
Mike's prior marriage-
Mike and Marie-
- Married in 2oto
- Have adequate homeowners, automobile, and umbrella liability insurance
- Have adequate life and medical insurance
- Receive $2,700 per month as a pension from the cosmetic supply firm
- Receive $2,060 per month from Social Security
- Joint life and last survivor life expectancy of 23 more years
- Are in the 35% marginal tax bracket for 2015
- Estimate emergency fund needs at $13,500
- Need estimated $2,500 per month increase in income for the rest of their lives to avoid depleting their investments
DETAILS OF MIKE AND MARIE'S ASSETS-
- Property ownership is noted on the following statement of financial position
- Checking account with current balance of 3,500, paying 0.25% interest
- Money market fund with current balance of $1,042,500, paying 0.50% interest
- Certificate of deposit paying 4%, maturing 1-2-16
- Happy Heights Car Wash is solely owned by Mike; it was purchased in 2008 for s167,000; property is continuing to appreciate rapidly; Mike and Marie are extremely disappointed in the income from the property
- The vested pension benefits contributed solely by his employer, which are to be received by Mike after age 65, are for this life only, terminating upon his death with no survivorship benefits for Marie; Marie expressly consented to the provision of the plan that provides for forfeiture of vested benefits upon Mike's death
MIKE AND MARIE'S ESTATE PLANNING OBJECTIVES-
Objective 1:
(1) Provide Marie with adequate income each year from the assets included in Mike's gross estate if he predeceases her
(2) Ensure that Dean and Karey will receive tax-free the maximum amount of Mikes estate after Marie dies
(3) Prevent the assets used to provide income to Marie from being inciuded in her gross estate
Objective 2:
(1) Increase Mike and Marie's income while freezing the value of the rapidly appreciating car wash property
(2) Provide Dean with an opportunity to purchase the car wash property
(3) Retain security in the car wash property in the event Dean cannot complete the purchase of the property
Objective 3:
(1) Make a substantial contribution to the United Way
(2) Reduce Mike and Marie's current income tax liability
(3) Guarantee a fixed amount of annual income for the rest of Mike and Marie's lives.
Attachment:- Assignment.rar