Three years ago, under pressure from competitors, the directors of ABC $($Pty$)$ Ltd $($ABC$)$ decided to offer one of their key employees John an incentive to encourage him to stay with the company for at least five years.

The company chose to enter into a preferred compensation agreement with John. The terms of the agreement were as follows:

John agreed to remain in the companys service for a period of five years.

John agreed to take out an investment policy.

ABC undertook to increase Johns salary so he could afford to pay the policy premiums.

John agreed to cede the policy to ABC as security that he would abide by the terms of the agreement.

John agreed that if he leaves the company before the end of the five$-$ year term he would forfeit the benefits under the policy $($this condition would not apply if John died during the period$).$

ABC agreed to cancel the security cession at the end of the five$-$year term.

John nominated his wife as the beneficiary of the policy proceeds.

Pension Fund Benefit

John is also a member of the ABC Pension Fund which offers approved group life benefits. The benefits under this plan are as follows:

Calculation of benefits

Pension: On resignation: $7\mathrm{.}5\%$ x years of service x final salary

At retirement: $6\mathrm{.}5\%$ x years of service x final salary

Death

Lump sum: $4\mathrm{.}5$ x annual salary

Personal Details

John is married to Sophie in community of property. The couple have two minor children, Sam $(8)$ and Tina $(12).$ When Johns sister Kerry died, John adopted her five$-$year$-$old son Brian.

John has another child, Allan $(20),$ from a previous relationship. Allan has just qualified as an accountant and is currently working as an intern at a local accounting firm. Allan has a one$-$year$-$old son Jay, with his girlfriend Tammy.

John and Allans mother Mary, divorced ten years ago. According to their divorce settlement agreement, John agreed to pay Mary maintenance of R$10000$ per month for the rest of her life.

John also lives with his mother, Barbara who is a pensioner. Although Barbara receives a monthly government pension, she is dependent on her son for most of her needs.

John is killed in a motor vehicle accident three years after the preferred compensation agreement was signed. Sophie approaches you for advice regarding Johns employment benefits. She is particularly concerned about the group life cover and the preferred compensation policy.

Write a report to Sophie $(1-2$ pages in length$)$ in which you explain how the preferred compensation will affect his estate as well as how the benefits under the group life will be paid.

The following must be taken into account:

Estate duty implications, Income tax implications $,$ Distribution of death benefits

Question: Compile a report based on the following:

Introduction, areas of concern, objectives, Possible courses of action, conclusion and recommendation.