Dr. Maria G. Habanero
Personal Data
Age 47
College professor
Recent widow
Children: Consuelo, age 18, Guzman, age 13
Financial Data
Assets at fair market value
Cash (Maria has put her sister Chiquita on the account) $ 200,000
Stock- Los Manos Corporation (Maria has the certificates) 50,000
State Retirement Plan contributions to date (defined benefit plan) 35,000
IRA's
Inherited IRA (from 1rst husband. Maria is sole owner) 68,000
Maria(Maria is sole owner) 27,500
Residence(Maria is fee simple owner) 400,000
Mortgage 300,000
Auto (2009 BMW. Titled in Maria's name) 20,000
Silver service (to go to Guzman) 15,000
Personal jewelry and designer dresses (to go to Consuelo) 20,000
Furniture and household items (to go equally to both children) 15,000
Four years have passed since you prepared the retirement plan for Maria and she now has come to you for some estate planning advice. After talking with her you determine the following:
1. Maria has been living with a man for the last three years and he has older children from a previous marriage who live on their own. These children are oddly inquisitive about assets owned by Maria. For this reason Maria has insisted that each maintain separate accounts and asset ownership and not commingle. Assume they do not reside in a community property state.
2. Maria has two sisters(Chiquita and Rosa). Chiquita is 2 years older than Maria and has struggled through two failed marriages and is
currently seeing a certain Pablo Escobar who appears to be somewhat shady himself. Chiquita has no children and lives in the same city as Maria. Maria placed Chiquita's name on the cash account so that she could use the money to take care of immediate cash needs for Maria's children while still minors if something happened to Maria. Rosa is 10 years younger than Maria. She has been in a stable, prosperous marriage for 10 years and has 3 children. But she lives two days drive from Maria's residence. So Maria has reasoned that
Chiquita would be a better choice to take care of her children in the event she passed away or was incapacitated.
3. Maria has no estate planning documents. Assume the total cost for traditional estate planning documents including a will is $500.
4. Maria recently attended a seminar where a group of lawyers presented a convincing case for the use of living trust as a "do it all solution" for estate planning. The fee for creating the living trust is $3,500. This is only for drawing up and signing the trust document.
5. The probate court costs and personal representative fees for probating a will in Maria's state are capped at 1% of the total probate estate.
6. Maria is concerned about who gets what in the event of her death as well as leaving a small sum ($50,000) to her sister Chiquita who has never had very much. She told her sister just to take the $50,000 out of the cash account, but only if there is enough money left after taking care of Maria's children's needs. She wants everything else to go to her children on her death.
Based on the above scenario, do the following:
1. Calculate Maria's total probate estate as it exists now.
2. Consider what types of documents Maria needs in place to have a proper estate plan in place and list those. In doing this prepare a list of the issues that Maria currently faces and identify the type of document that will address each issue. Understand that this list will include those things she wishes to accomplish. But it is not limited to those things alone.
3. Explore the alternatives available to her to pass property to her beneficiaries according to her wishes (including whether or not to use a Living Trust) and make specific recommendations to her including how property will pass according to each recommendation you make. If you do decide to recommend the living trust, explain why and if there are any further steps Maria needs to take in connection with that.
4. Recalculate her total probate estate if all of your recommendations are utilized by her.