Please answer this: Here is the information:
They current have no estate planning documents.
They want to know the cost of college education for the two children so that they can approach Angels father about fully funding 529 Plans. The current cost of education is $35,000 per year in todays dollars and the inflation rate is expected to be 5%. They expect the children to be in school for 6 years each, and while they dont know, they expect the 529 Plans investment rate of return to be 8.5%. They want to plan for an early retirement (100% wage replacement ratio, excluding the trust income) at age 62, as they want to spend the autumn of their lives together traveling and visiting friends and family. Alan plans to save $18,000 per year in a 401(k) plan starting this year and to have an employer match of $6,000. They expect to live to age 90.
1. Describe the estate planning documents that the Youngs need immediately and what are the important provisions of each. If you recommend powers, who is the power holder?
Here is an example of a solution from a similar problem with a different family:
Recommendations:
Prepare wills that include survivorship clauses. Prepare durable powers of attorney for healthcare and make them immediately effective to each other and to each child who is competent. Prepare durable powers of attorney for property arrangements for Chase, for his business and for Janet for both the business and the farm. Powerholders should be each of them first, and then competent children. Prepare advance medical directives for each of the
Education
Transfer $1,350,000 by gift ($75,000 per donor/per donee) from the revocable living trust to nine 529 Plans ($150,000 each) and elect to treat the gifts as made ratably over a 5 year period. Chase and Janet would be the joint and survivor owners, then the blood parent of the grandchild would be the successor owner of each account.
Assets 1/4 Current Assets Cash & Cash Equivalents CP Banking Account Total Current Assets Statement of Financial Position Alan and Angel Young Balance Sheet as of 1/1/2020 Liabilities and Net Worth Current Liabilities? CP Principal Residence Mortgage $6,269 $28,000 Total Current Liabilities $28,000 Long-Term Liabilities CP Principal Residence Mortgage $254,245 Investment Assets H Portfolio (Inherited) W Brokerage Account CP 401(k) Plan Total Investment Assets $200,000 $67,000 $32,000 $299,000 Total Long-Term Liabilities $260,514 Total Liabilities $260,514 Personal Use Assets CP Principal Residence3 W Automobile # 1 CP Automobile #2 CP Furniture and Household $550,000 $40,000 $25,000 $150,000 Total Personal Use Assets Total Assets $765,000 $1,092,000 Total Net Worth Total Liabilities & Net Worth $831,486 $1,092,000 Cash and Cash Equivalents Residence Brokerage Account Life Insurance Retirement Account Business (Full Value) $1,100,000 $4,200,000 $4,000,000 $9,000,000 $4,000,000 $4,500,000 $26,800,000 Total Result Asset Cash and cash equivalents Residence Brokerage Account Life Insurance Retirement Account Business Total Assets Chase's Comments Asset Assets $1,100,000 Transfer to Living Trust Cash and cash equivalents $4,200,000 Transfer to Living Trust Retirement Account $4,000,000 Transfer to Living Trust Brokerage Account $9,000,000 Transfer to ILIT Family Farm $4,000,000 Transfer to Living Trust Miscellaneous $4,500,000 Create FLP Business $26,800,000 Total Assets Janet's Assets $400,000 $2,100,000 $2,100,000 $6,225,000 $2,000,000 $500,000 $13,325,000 $4,500,000 $500,000 Less transfers of FLP interests Less donations to 529 Plans $675,000 $675,000 Less transfers of FLP interests Less donations to 529 Plans Less transfer of life insurance Transfers Assets after transfers* $9,000,000 $14,175,000 $12,625,000 Transfers Assets after transfers $1,175,000 $12,150,000 Assets 1/4 Current Assets Cash & Cash Equivalents CP Banking Account Total Current Assets Statement of Financial Position Alan and Angel Young Balance Sheet as of 1/1/2020 Liabilities and Net Worth Current Liabilities? CP Principal Residence Mortgage $6,269 $28,000 Total Current Liabilities $28,000 Long-Term Liabilities CP Principal Residence Mortgage $254,245 Investment Assets H Portfolio (Inherited) W Brokerage Account CP 401(k) Plan Total Investment Assets $200,000 $67,000 $32,000 $299,000 Total Long-Term Liabilities $260,514 Total Liabilities $260,514 Personal Use Assets CP Principal Residence3 W Automobile # 1 CP Automobile #2 CP Furniture and Household $550,000 $40,000 $25,000 $150,000 Total Personal Use Assets Total Assets $765,000 $1,092,000 Total Net Worth Total Liabilities & Net Worth $831,486 $1,092,000 Cash and Cash Equivalents Residence Brokerage Account Life Insurance Retirement Account Business (Full Value) $1,100,000 $4,200,000 $4,000,000 $9,000,000 $4,000,000 $4,500,000 $26,800,000 Total Result Asset Cash and cash equivalents Residence Brokerage Account Life Insurance Retirement Account Business Total Assets Chase's Comments Asset Assets $1,100,000 Transfer to Living Trust Cash and cash equivalents $4,200,000 Transfer to Living Trust Retirement Account $4,000,000 Transfer to Living Trust Brokerage Account $9,000,000 Transfer to ILIT Family Farm $4,000,000 Transfer to Living Trust Miscellaneous $4,500,000 Create FLP Business $26,800,000 Total Assets Janet's Assets $400,000 $2,100,000 $2,100,000 $6,225,000 $2,000,000 $500,000 $13,325,000 $4,500,000 $500,000 Less transfers of FLP interests Less donations to 529 Plans $675,000 $675,000 Less transfers of FLP interests Less donations to 529 Plans Less transfer of life insurance Transfers Assets after transfers* $9,000,000 $14,175,000 $12,625,000 Transfers Assets after transfers $1,175,000 $12,150,000
