Maria Costa was aged 64 when she dies on the 1 February 2017 with the following assets:

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Question:

Bank account with a balance of $40,000 interest received quarterly at 2% on 1 April, 1 July, 1 October, and 1 January House bought in 1995 for $230,000 which was her place of residence and not used to produce income and valued on 1/2/2017 at $1,250,000. Fully owned.

Shares in listed companies ABC (worth $25,000) and LWZ (worth $35,000). Both shares were bought on 30 June 2000 (ABC cost $6,000 and LWZ cost $10,000). Both paid interim dividends on 1 October 2016 of $200 and $300 respectively and a final dividend of $200 and $800 payable on 1 April 2017 Superannuation death benefit with a balance of $1,000,000. There is no binding death benefit nomination. The tax free element of the balance is $700,000. Maria has just quit work to retire but has not drawn on her superannuation yet.

Wages owing but not yet received $2,000 (assume Maria gets paid fortnightly). Her income to the time of death for the year (net of deductions) is $70,000.

Rental flat bought on 1/7/2005 for $300,000 - unoccupied at the time of death.

The executor of the estate is Maria's friend Klaus. During the estate administration Klaus had to:

Pay for repairs to Maria's house $15,000 on the 1/7/2017 Pay estate agents fees and advertising for the sale of the rental property $10,000 on the 14/7/2017 Pay estate agents fees and advertising on 21/7/2017 $10,000 for the sale of Maria's house Sold Maria's house on 1/6/2017 for $1,475,000 Sold rental flat for $550,000 on 30/5/2017 and repaid mortgage of $200,000. No interest was owing at the time of death but interest for the year was $12,000 with payments made at the start of each month.

Klaus wants to wind up the estate by the 30/12/2017. Maria's has 2 children John is the oldest child (aged 45) and Juniper (aged 40). Maria's has left the entire proceeds after bequests are made via the establishment of a Testamentary Trust to Juniper and John. Note that Klaus is the nominated trustee of the Testamentary Trust and the trust requires Juniper and John to receive and annual distribution of trust income. Note that the deed of the testamentary trust describing the trustee's discretions (including to distribute net income) as 'absolute and uncontrolled'. Klaus and John have a fractious relationship for many years with Klaus telling Maria just prior to her death he dislikes her son and wants nothing to do with him following a failed business partnership many years ago.

Further, Maria has provided in her will a legacy of $80,000 for her sister Beth aged 67 and $10,000 to the National Gallery of Victoria.

On the 1/6/2017 Beth contacts Karl on receiving information from him regarding her inheritance from her sister. She demands a copy of the Will and says that her sister and she were always very close and she should receive significantly more and threatens to contest the Will.

Specific Requirements

1)Based on the above details, transactions and events prepare the General Journal entries then post these to the General Ledger and prepare a trial balance and distribution statement(s) assuming Klaus can wind up the estate on the 30/12/2017.

2)Identify and describe the practical and legal obligations Klaus has regarding winding up the estate.

Identify and describe the obligations and requirements Klaus has with regards to disclosing the contents of the Will and describe how he should respond to Beth's threat to contest the Will.

3)While administering the estate Klaus finds an old Chinese looking vase in a wardrobe. Interestingly Beth contacts Klaus shortly after the vase was uncovered and tells Klaus that if he finds a Chinese vase in the house, she is happy to take this instead of the cash and will not progress with a claim against the estate. Suggest on a course of action for Klaus in relation to finding the vase and his response to Beth.

In his role as trustee of the testamentary trust what advice would you give to Klaus particularly in relation to how to decide on trust distributions.

Clearly state any assumptions you make. Provide appropriate references where applicable.