Tino and Maria need help with estate planning. Based on the information below what type of estate
Question:
Tino and Maria need help with estate planning. Based on the information below what type of estate planning documents should they have ? How and why based on information of Tino and Maria
ESTATE INFORMATION
Tino and Maria each have simple wills, leaving everything to the surviving spouse.
PERSONAL INFORMATON AND BACKGROUND
Tino and Maria Di Mauro just sold their business and are ready for retirement. They have more decisions to make to fund their plans for travelling, setting up their later years while passing on financial security to their three sons. They are reaching out to you for help.
Tino and Maria have been married for 37 years. Maria is 56 and Tino is 58. Tino's ambition was always to have his own place and to entertain guests. His family's culinary traditions and Maria's business acumen lead them to dream of opening an Italian restaurant in downtown Baltimore. Tino and Maria married three years after meeting and then quickly came a succession of three boys to expand the family: Angelo, the oldest (now 36), is married with one child, Lillo (34) also married with four children and Cosimo (30) still single but in a long-term relationship in the past 5 years with no child. Trying to save while expanding the family delayed their dream for close to 10 years but finally, they opened their own Italian restaurant in 1993 and succeeded. While Maria was busy at home with three young boys, Tino found out that, with her help, he too could manage the business well and the restaurant prospered. They were able to open two additional locations around the metro area. Further, once the restaurants ran smoothly, Tino and Maria were finally able to invest and plan for retirement. Once the dust of the 2008 crisis settled, the timing was perfect for them to start investing in rental properties in nearby Baltimore County where they raised their sons. After quickly buying two then three homes in the early 2010's, they now own seven single-family home properties available for long-term rental. Their sons are all grown and financially independent with their own families. Angelo moved to nearby Philadelphia while Lillo and Cosimo remained local in the greater Baltimore area.
Tino and Maria's plans however changed in 2021 when Maria was diagnosed with diabetic retinopathy after her vision started getting impaired. She is diligent about managing her diabetes and never expected her vision to deteriorate. She hopes that with proper treatment and control her condition will not worsen. Nevertheless, she and Tino decided that continuing to take care of the three restaurant locations and the rental properties would prevent them from travelling before Maria can still fully enjoy the vacations. They decided to sell the restaurants to a local restaurant group and the first payment is scheduled for June 1st, 2023 with one additional payment scheduled later.
GOALS AND OBJECTIVES
This leaves them in a completely new situation. They can no longer rely on the salary Tino used to draw from the restaurant business and do not want to rely on the uncertain income from the rental properties. At the same time, they would like to step away from the daily involvement with their real estate holdings. They are blessed with the money from the business sale and the income from the rentals but would like you to help them plan for their remaining years.
Tino and Maria would like to enjoy extensive travels domestically and internationally while Maria's vision remains healthy. At the same time, they would like to secure their three sons' financial well-being by passing along some of the proceeds from the restaurants sales. They initially discussed keeping half of the
proceeds and gifting the other half equally among their three sons. There remains the issue of managing the rental properties. Angelo lives too far and Cosimo was never interested in helping with the rentals. Lillo works for a local contractor and has been the main helper to Tino with the rental properties. Tino and Maria are considering paying him about 10% of the rental income for Lillo to take over all responsibilities with the properties. This will supplement his income from his main job, especially since Lillo and his wife now have four children and this will also free Tino and Maria to travel while still earning income from the rentals.
Additionally, Tino and Maria are considering moving to a smaller home, better suited to Maria's vision needs in the next five years and would also like your help planning for his and her later years, especially if Maria's vision or diabetes were to worsen. They expect to live to 95.
Tino and Maria lived comfortably but had little time for leisure. They plan on spending at a higher rate in the next few years before slowing down their expenses.
RETIREMENT INFORMATION
If Tino takes his Social Security benefits at 67 when he reaches his full retirement age, his benefits will be $40,000 per year in today's dollar. Maria, who never drew a salary from the business, would have Social Security benefits at 67 of $18,000 per year in today's dollars. COLA on these payments is estimated to closely follow inflation.
RESTAURANT BUSINESS
Prior to coming to you, Tino and Maria have recently finalized the sale of the three restaurants to a local restaurant group. Using the SDE method and negotiating an attractive multiple of 3.2x since their restaurants are well regarded in the community and continue to attract a fast crowd throughout the year, the couple secured an agreement for a sale valued at $1,200,000. The payment is split into two installments: an upfront payment of $900,000 after all appropriate taxes will be made on 6/1/2023 and a deferred payment of $300,000 in 3 years due on 6/1/2026. The new ownership offered Tino to stay onboard as an occasional consultant for $20,000 a year plus health benefits until the deferred payment is made.
RENTAL PROPERTIES
The couple provided you with information concerning their rental properties holdings. They added information on their current principal residence. See the information in Exhibit 1.
INSURANCE INFORMATION
Tino has a $200,000 term life insurance policy with Maria as beneficiary. Maria has no life insurance.
The family's health insurance coverage comes through Tino's new consultant position. It is a combination POS plan. The POS has a $25 doctor co-pay and $150 emergency room/hospital co-pay. The POS has a $3,000 individual/$6,000 family deductible and 80/20 co-pay. INCOME TAX INFORMATION
Tino and Maria file married jointly. In 2022, they were in the 24% and 5.25% marginal federal and state income tax brackets, respectively. They expect the brackets to change in the coming years as Tino will no longer draw a salary. Capital gains and qualified dividends were taxed at 15%.
Tino and Maria Di Mauro
Statement of Financial position
As of December 31st, 2022
ASSETS CURRENT LIABILITIES
Current AssetsCredit Card Debt $ 3,750 Checking $ 13,000 Mortgage (Residence) $ 13,056Savings $ 57,000Mortgage (Rentals) $ 72,500Total $ 70,000Vehicle # 2 Loan $ 4,802Total $ 94,108
Investment Assets
IRA - Maria $ 27,855LONG-TERM LIABILITIESRestaurant Business $ 1,200,000 Mortgage (Residence) $ 24,057Rental Properties $ 2,427,000Mortgage (Rentals) $ 1,353,500Total $ 3,654,855Vehicle # 1 Loan $ 0 Vehicle # 2 Loan1$ 5,451
Total $ 1,383,008
Personal Use Assets
Principal Residence $ 532,000TOTAL LIABILITIES $ 1,477,116Vehicle # 1 $ 5,100
Vehicle # 2 $ 14,570
Personal Property $ 65,000NET WORTH $ 2,864,409 Total $616,670
TOTAL ASSETS $ 4,341,525 TOTAL LIABILITIES AND NET WORTH
1Loan information: $23,000 5-year note at 4.50%, taken out 3 years ago
$ 4,341,525
Tino and Maria Di Mauro
Statement of Income and Expenses in 2023 - Estimated by Clients
Totals
Cash Inflows
Tino's salary $ 20,000
Rental Income $ 177,1501
Total Cash Inflows $ 197,150
Cash Outflows
Taxes
Federal Income Taxes $ 27,894
State Income Taxes $ 10,843
Tino's FICA $ 1,240
Property Tax - Principal $ 4,364
Property Tax - Rentals $ 26,043
Total Taxes $ 70,674
Debt Payments
Mortgage - Principal $ 14,220
Mortgage - Rentals $ 117,324
Credit Cards $ 3,750
Auto Loan (Vehicle # 2) $ 5,150
Total Debt Payments $ 140,444
Living Expenses
Utilities - Principal $ 1,920
Gasoline $ 5,250
Travel $ 15,000
Charitable Contributions $ 750
Clothing $ 300
Auto Maintenance $ 300
Subscriptions $ 400
Food $ 6,800
Misc. $ 5,000
Total Living Expenses $ 35,720
Insurance Payments
HO - Principal $ 2,900
HO - Rentals $ 10,500
Auto Insurance $ 1,750
Tino's Life Insurance $ 350
Total Insurance Payments $ 15,500 Rentals Maintenance $ 12,000 Total Cash Outflows $ 274,338
Net Discretionary Cash Flows ($ 77,188)1The clients assume near full occupancy with a new tenant moving in Rental # 4 soon.
EXHIBIT 1
As of December 31st, 2022
Home | Purchased | Purchase Price | Value | Loan Amount | Loan Balance | Payments Left | Monthly Payment | Homeowners Insurance Annual | Property Taxes Annual | Rent Monthly | Occupied |
Principal1 | 1999 | $225,000 | $532,000 | $163,000 | $37,113 | 32 | $1,185 | $2,922 | $4,364 | N/A | N/A |
Rental # 12 | 2009 | $291,000 | $380,000 | $196,000 | $171,000 | 150 | $1,420 | $1,718 | $4,224 | $2,500 | YES |
Rental # 2 | 2010 | $300,000 | $395,000 | $230,000 | $201,000 | 150 | $1,675 | $1,823 | $4,100 | $2,500 | YES |
Rental # 3 | 2011 | $215,000 | $287,000 | $169,000 | $148,000 | 150 | $1,230 | $1,126 | $3,263 | $2,000 | YES |
Rental # 4 | 2013 | $203,000 | $295,000 | $182,000 | $160,000 | 150 | $1,325 | $1,173 | $3,167 | $2,000 | NO |
Rental # 5 | 2015 | $306,000 | $420,000 | $241,000 | $211,000 | 150 | $1,750 | $2,006 | $3,973 | $2,500 | YES |
Rental # 63 | 2017 | $265,000 | $322,000 | $265,000 | $252,000 | 330 | $1,121 | $1,336 | $3,760 | $2,200 | YES |
Rental # 7 | 2019 | $275,000 | $328,000 | $298,000 | $283,000 | 330 | $1,256 | $1,373 | $3,556 | $2,200 | YES |
Auditing and Assurance Services A Systematic Approach
ISBN: 978-0077732509
10th edition
Authors: William Messier Jr, Steven Glover, Douglas Prawitt