Group Assignment
Case Analysis of 2 Scenarios
The following has 2 Scenarios:
1) In Scenario One Thomas and Sari are killed
2) In Scenario Two Thomas and Sari are still living and looking for detailed estate planning
3) Each scenario requires analysis and recommendations (focusing on the question). You need to make 2 sets of responses/recommendations (one as to how the estate will be treated at time of their death and another as they plan to potentially utilize an estate freeze (still alive))
In Scenario One Thomas and Sari are killed
Background
Thomas, age 58, immigrated to Canada from Greece in his 20s. Over the years, he built a small chain of budget-rate hotels in the GTA and has become wealthy beyond his dreams. His private corporation, Apollo Inc., owns the hotels and, in some cases, the land on which the hotels are built. Two years ago Apollo purchased a $5,000,000 Aetna term insurance policy on Thomas's life. Apollo is both the owner and beneficiary of this policy.
Thomas and his first wife divorced years ago and she returned to Greece. He has no ongoing obligations toward his first wife and is now happily married to Sari, 45. He has a son Tony, 28, from his first marriage and a daughter Lisa, 17, with Sari. Tony is actively involved in his father's business and Sari wants Lisa to become involved also.
Information Gathering Meeting
At your first meeting with Thomas, you gathered the following information:
Thomas
Personal Assets FMV ACB
Home owned jointly with Sari $ 3,000,000 $ 1,600,000
RRSPs (portfolio of segregated funds) $ 800,000 n/a
Corporate Assets/Liabilities FMV ACB
1000 common shares of Apollo Inc. $ 7,100,000 $ 0
Sari
- Not employed
- Serves on the board of the North York General Hospital Foundation
- Home jointly owned with Thomas
- Non-registered portfolio of investments purchased with funds from an inheritance: FMV $650,000, ACB $610,000
Tony
- Employed by Apollo; reports to a General Manager who reports to Thomas
Lisa
- Full-time student
Planning to Date
On her marriage to Thomas, Sari purchased a Universal Life policy with a death benefit of $100,000 and named Thomas beneficiary. She did not name a contingent beneficiary. Thomas and Sari recently purchased a joint and last-to-die Term-to-100 insurance policy with a death benefit of $2,000,000. Their respective estatesare beneficiary. This is their only personal life insurance.
Thomas has named Sari the beneficiary of his RRSPs.
Thomas plans to expand his business and projects that Apollo will continue to grow at 10 - 15% per year. He expects that Tony will take over the business eventually, as long as he proves himself capable. He hasn't given any thought as to whether Lisa will eventually join Apollo.
Thomas and Sari have met with their lawyer to discuss their wills but the wills haven't been drawn up yet.
Doom's Day
On January 15, 2015, Thomas and Sari were in a terrible car crash. Thomas died at the scene. Sari died in hospital a week later. Lisa has a new boyfriend, 25, who the family thinks is a drug dealer.
Instructions
This assignment has 20 marks and is worth 10% of your final grade.
A. Type the report in Times New Roman 11 font with 1.5 line spacing (no more than 10 pages including exhibits). Include a cover page listing names of group members.
Attach pages with one staple in upper left corner. One mark will be deducted from your total if you do not comply with these instructions.
B. Respond to the following questions in bullet form:
1. List the assets that will be included in Thomas's estate at death and calculate the probate fees payable, using Ontario rates.
2. Using only the information provided in the case and a 40% tax rate, calculate taxes owing on Thomas's death. Show all your work.
3. List the assets that will be included in Sari's estate at death and calculate the probate fees payable, using Ontario rates.
4. Using only the information provided in the case and a 40% tax rate, calculate taxes owing on Sari's death. Show all your work.
5. Total the fees and taxes payable on Thomas's and Sari's death. If you were the estate administrator, which asset/s would you use to pay these expenses and why?
6. Using only the information provided in the case:
a. Calculate Tony's net worth and Lisa's net worth after Thomas's and Sari's estates have been settled.
b. Do you think this is what Thomas and Sari would have wanted for the children? Why or why not?
7. What step did Thomas take prior to death that will help Apollo's management team in the short-term? Explainyour reasoning.
C/ In Scenario Two Thomas and Sari are still living and looking for detailed estate planning
Thomas and Sari's accident was just a terrible nightmare. They are still living but the nightmare has scared them both. They want to make sure that an appropriate estate plan is in place as soon as possible.
1. Thomas and Sari need to execute wills. What "special" clauses should Thomas consider inserting in his will that will help avoid the problems identified in the first part of the assignment?
2. Aside from executing their wills, what other steps should Thomas and Sari take with regard to their estate plan?
3. What steps should Thomas take to further facilitate the viability of Apollo in the event of his sudden death?
4. Do you think Thomas is a good candidate for an estate freeze? Why or why not? Illustrate the process Thomas would go through to freeze his shares in Apollo.