Estate PlanningArt and Lynn Andrews are married and have two children. Art is 40 years old and Lynn is 39.
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Art and Lynn have the following assets:
- residence: $1,250,000.00
- 401(k) Plan benefits $ 250,000.00
- Roth IRA: $ 30,000.00
- stocks and bonds: $ 100,000.00
- cash and savings $ 100,000.00
- miscellaneous personal property $ 20,000.00
- interest in law partnership: $ 500,000.00
The Andrews have a mortgage of $850,000.00 against their residence, owe $75,000.00 to Lynn's parents that was incurred in starting the law partnership, and have $10,000.00 in credit card debt.
They tell you they feel that due to Lynn's income they will be able to pay off the debt to her parents in the next three years to five years and then start saving even more money for their retirement and children's education. They tell you that Lynn is a sole child, expects to receive an inheritance from her parents at their death of approximately $5 million, and that her parents are in their early seventies but not in the best of health.
Art's family does not have much in the way of money so not much of an inheritance is expected from them.
Lynn is concerned about liability for debts and liabilities incurred by the partnership and her partner. They have $1 million in malpractice insurance, but she is not sure this is enough and is afraid of a judgment that could wipe out any potential inheritance.
Finally, they are primarily concerned about the future of their children and their welfare. They want Art's sister Ann to care for the children if they were to die before the children become adults. They feel Ann could handle any trust assets for the children as she is a CPA. They would like to be able to make sure that their children have their college education paid for. In addition, any moneys that were to go to the children are to be held for them until they reach 30 at which time they can have one half of the funds held for them, and the remainder of the funds can be given to them when they reach 35.
The youngest of their children, Jeff, has some learning disabilities that may require special education and additional expenses that will not be incurred in educating the other child Sally.
When you prepare the estate plan analysis for the Andrews I want you to consider how the proposed estate plan would change, if at all, 1) if were told there was a pending malpractice suit against Lynn's partner and the law partnership for $ 2 million for a real estate deal that went awry; or, 2) if you were told that there is no pending suit, but rather Lynn will be receiving her share of a contingency case the firm just settled and her share will be $1,000,000?