Jack (65) and Jill (63) Low live at 13 Black Street, Rye, 3941, and have two children, Ron (46 a plumber) and Sally (42 a social influencer). Ron has two adult children Sam (26) and Darrell (22) both of whom are living independently. Sally has twin children, Daisy and Lily, both aged 12 .Jack and Jill have come to you seeking advice on their general and personal insurance and estate planning matters. Jack owns his own white good repair business and has a small SMSF account but no personal insurance. At the start of the meeting with you Jack and Jill note they concerned that they do not have enough insurance should they pass or become ill. Jill notes thought that she has default / standard level personal insurance cover with her superannuation fund, Hesta.

Your initial meeting with Jack and Jill is cut short when they receive a phone call from Sally who tells them they have to go and pick up their twin grandchildren from school as she has an urgent business appointment. Jill returns to you in a subsequent appointment by herself, as Jack is at work, to discuss their estate planning needs. During that conversation she informs you that she and Jack do not have, and have never had, Wills or powers of attorney. Jill notes they would like to leave their estate to each other on the event of their passing and when the survivor passes leave it to their children in equal shares. 

In addition, Jill tells you that she and Jack paid for the secondary schooling of Sam and Darrell and would like to pay for the secondary schooling of Daisy and Lily who start at the local private school next year. On further discussion Jill tells you that Ron is financially comfortable as his business is quite successful. However, Sally is always asking for money from her and in Jills words lives "high on the hog". She is concerned that when Sally receives her inheritance it will be spent very quickly and nothing will be left for the twins. Jill also tells you that Sally frequently asks her and Jack for money and has told them they need to sell their investment property and give her the proceeds so she can buy a house for herself. Sally has told Jack and Jill that if they don't do this she "might have to move interstate" and her parents "won't see the twins again". 

Jack and Jills personal and financial details are illustrated in the following Tables. 

 

 Table 1 Personal details of Jack and Jill

	Jack	Jill
Date of Birth	06/09/1958	26/01/1960
Age	65	63
Marital status	Married	Married
Employment
Work status	Full Time	Part Time
Occupation	White goods repairer - self employed	Manager at the local RSL
Health
Smoker	No	No
Estate planning
Will	No	No
Powers of attorney	No	No

 

 

1. Table 2 Income and Cash Flow Data for Jack and Jill

Savings and Expenses	Amount ($)
Jack's income  (after business expenses but before tax)	137,500
Jills's Salary (before tax)	62,000
Other income - rental income	24,000
Income before tax	223,500
Household / living expenses	(52,000)
Home Loan repayments (Principle and interest)	(40,404)
Investment property loan repayments (Principle and interest)	(44,808)
Holidays and entertainment	(10,000)
Total expenses	147,212
Total Surplus before tax	76,288

 Note: Figures are for the prior financial year

 

 Table 3 Liabilities of Jack and Jill

Liability	Amount Outstanding	Interest rate
Home mortgage	$300,000	6.24%  (10 year std var p&i)
Investment Unit	$600,000	6.35% (30 yrs p&i)
Loan on Jacks van	$20,000	7.0%  (5 yrs)
Credit card debt	$12,000	13.5%

 Note: assume credit card and van payments included in household living expenses

1. Table 4 Assets of Jack and Jill

Asset	Cost and date of purchase	Market value
Home	$800,000 in 2016	$1,200,000
Contents	$140,000	$100,000
Investment Property Loan	$700,000	$800,000
Car and Van	$88,000	$72,000
Bank account		$20,000
Tools for business		$50,000
Superannuation  ‐Jack  (SMSF) ‐Jill (HESTA)		$70,000  $80,000
Total assets		$2,392,000

 

1. Other information

• Jack has been told by his friend Michael that he should just prepare an online Will himself and get insurance online as there is "no good reason to spend lots of money on having an estate plan prepared or getting advice on insurance". As a result of Michael's advice Jack reluctantly came with Jill to see you. 

•You can assume that funeral and final medical expenses would be $30,000 if either passed away. Assume that if either Jill or Jack were seriously injured, out-of-pocket medical expenses would amount to $25,000. Jack and Jill do not have private medical insurance. 

•Jack and Jill intend to retire at 68 and 65 respectively, at which time they expect to be able to live off the income derived from their superannuation accounts, investment property as well as the proceeds from the sale of Jack's business. 

•You can assume that the income derived from the investment property as well as interest on the loan is divided equally between the couple. You can ignore other expenses relating to the investment property.

•Jack's business "Peninsular White Goods Repairs" assets consist of Jack's tools and his van (estimated to be worth $50,000) and a computers which hold all records of the business. All information is backed up via a USB memory stick. He rents a small space in an industrial estate where he operates his business. 

•Jack believes that his business would be worth twice his annual gross income if he were to sell it.

•Ron's oldest son Sam has expressed a desire to take over the business and has proposed working with Jack for 12 months before he takes it over. Sam is a qualified electrician. 

•Assume a CPI rate of 7 per cent p.a. 

•Jill and Jacks' life expectancy is estimated at 85 years and 83 years respectively. 

•Included in the contents list are several items of antique furniture items that have been handed down to Jill from her grandmother and have a current value of $37,000. 

•You can assume that in case of one of the couple dying prematurely, the couple's living expenses would fall by 20 per cent. 

•The couple has a Home and Contents policy (house cover $800,000 and contents $100,000) and a Third Party insurances on their cars. They have no other insurance policies in place. 

•Jill currently makes the statutory contributions to superannuation but no additional contributions. 

 

1.  

Specific Requirements

After analysing their personal circumstances, write a limited Statement of Advice (SOA) to Jack and Jill. 

Ensure that you summarise their current estate planning and insurance positions, outline the potential risks and losses they are exposed to. 

Identify suitable estate planning strategies to address their existing risks and desires and justify these to the couple. 

Justify and explain the types of person insurance cover you would recommended to cover their risks and calculate the amount of cover you recommend they put in place.

 It is expected that you will explain the various policy features as well as typical exclusions likely to be experienced and also discuss the merits for and against holding their various personal insurance policies within their superannuation funds including the tax implications of the cost of the premiums. 

You are not required to recommend specific policies (you don't need explain). 

Identify general insurance risks and make recommendations to the couple (note you don't need to recommend specific policies). 

Explain the need for a business succession plan and how insurance can be used to fund business succession making sure to identify and explain the issues involved eg who pay for the insurance as well as CGT and FBT consequences. 

The limited SOA should contain a Covering Letter addressed to the couple detailing the purpose and general content of the report and a Table of Contents.

Answer rating: 100% (QA)

Solution Here is a draft limited Statement of Advice for Jack and Jill Dear Jack and Jill Re Limited Statement of Advice on Estate Planning Personal I... View the full answer