FINANCIAL PLANNING CASE STUDY MODULE 2015 PART A AND B

Transcription

1 CARMEN VENTER WORKSHOPS FOR CFP EXAMINATIONS FINANCIAL PLANNING CASE STUDY MODULE 2015 PART A AND B Remember: always justify your answer as there is not only one correct answer! (unfortunately) ALWAYS make a conclusion don t just state fact and or calculation without actually answering the question with a CONCLUSION. Do not forget to quote authority and or legislation where it so requests! NOTICE THIS MATERIAL IS COPYRIGHT BY CARMEN VENTER WORKSHOPS FOR CFP EXAMINATIONS AND THEREFORE, NO PART OF THIS MATERIAL MAY BE REPRODUCED OR DISTRIBUTED IN ANY FORM OR MEANS WITHOUT THE AUTHOR S WRITTEN PERMISSION. REPRODUCTION OF ANY OF THIS WORK THAT IS NOT AUTHORISED, WILL CONSTITUTE A COPYRIGHT INFRINGEMENT AND THE OFFENDER CAN BE LIABLE UNDER THE CIVIL AND OR CRIMINAL LAW. WHERE MATERIAL HAS BEEN SOURCED REFERENCE HAS BEEN MADE AND THESE ARE NOT PROTECTED UNDER THE COPYRIGHT NOTICE. SUGGESTED SOLUTIONS ARE BASED ON CARMEN VENTER S INTERPRETATION AND UNDERSTANDING AND IF YOU ARE IN DISAGREEMENT, YOU ARE MORE THAN WELCOME TO PROVIDE AN ALTERNATIVE FOR FURTHER CONSULTATION CASE STUDY Susan Smit has been concerned with her health lately and has asked you to meet to assist her with her financial planning exercise. When you met with them, you established the following: Susan and Keith are married out of community of property with the accrual system. They have two daughters, Sally and Rene. Rene currently resides in the UK but sees this as her permanent home. At the time of marriage in 1998 the CPI value was 8.4 and is now 17.9 An Addendum to their marital contract stipulates the commencement values as follows: Susan has Assets to the value of R Keith has assets to the value of R

2 Their date of births are: Susan 1 Jan 1969 Keith 7 February 1967 Sally 15 February 2004 Rene 25 July 1991 Their assets and liabilities are as follows Susan Asset MV BC/original investment BMW Artworks Camps Bay Holiday House (SEE NOTE) Jewellery Cash Current Account Units (75% equities 25% property) Shares ZX Pty Ltd (note: buy & sell) Listed Shares (all blue chips) Money Market Unit Trust Offshore Investment in United States (Rand equivalent) Note: that the Camps Bay holiday house was specifically excluded from the Accrual as per the Addendum. This holiday house was an inheritance from her Dad who died on the 1 st June She had to take out a bond at the time to make some improvements she spend R in the year that she inherited it and then another R about 2 years ago when she added an enclosed patio. Susan has liabilities of R : Bond on Camps Bay holiday home Credit Cards On the yacht which she bought for Keith as a present for him to keep (this was noted) Motor Vehicles

3 Keith Asset MV BC Merc Yacht 9m Given to him as a present by Susan which has been noted on marriage contract Primary Residence Cash Current Account Shares Equities Keith has liabilities totalling R Bond Credit cards!! Susan is a Director and a 50% shareholder in ZX Pty Ltd and earns director s fees of R Her company provides her with only Risk Cover of 1 x Annual Salary under a Unapproved Group Scheme. The premiums paid by ZX Pty Ltd for this cover is R 465 per month. The nominated beneficiaries are the children. Keith has been a house husband for a while and relies mainly on Susan s income. Susan has not been impressed that she has had to service his debts and wishes that he could curb his spending or go find a job! After various discussions with them it is agreed that Susan has a moderately conservative approach and Keith, has a more conservative approach to financial planning and investing. Susan has been married before divorced her husband in 1997 but at the time according to the divorce agreement she was obliged to pay her ex spouse a monthly income of R 2500 per month increasing with inflation this had to continue until the ex-spouse died. The current payment is R 5800 per month and his life expectancy at this stage is years. Susan also has and /or receives the following: 1. Susan receives a cash annuity of R per month from a Trust set up by her late father. The Trustees are under no obligation to pay this to any other beneficiary on Susan s death.

4 2. Proceeds of R on an insurance Policy, A, taken out by Susan on her own life which is payable to Keith on her death. (The policy was not taken out under any registered ante or post-nuptial contract.) Premiums and interest paid by Susan amount to R Proceeds of an insurance Policy B, which is payable to Susan s sister Jill, who is her business partner, amounts to R Jill took out the policy on Susan s life in order to make cash available to acquire Susan s shares in ZX (Pty) Ltd on her death. You may safely assume that this meets all requirements of the Estate Duty Act. The Agreement stipulated that if the policy proceeds were not sufficient then remainder capital had to be paid to her heirs over a period of 5 years, but capital repayments had to be made at least once a year. Assume no interest on the outstanding capital. 4. Proceeds of R on an insurance Policy C on Susan s life is payable to ZX (Pty) Ltd who took out the policy. Premiums and 6% interest amount to R and were paid by ZX (Pty) Ltd. Susan and Jill are the only shareholders in the company - they have equal shares. Keyman purposes. Assume it meets all the requirements necessary. 5. With regards to the Money Market of R this attracted interest at 5.9% and yielded R8815 for the 2015/2016 year of assessment. 6. Listed shares (Blue chips) for 2015/2016 : dividends of 8.5% and interest of 4.5% 7. Offshore Investment in the US neg results of 4.25%. However, offshore dividends amounting to R1000 was still received for the 2015/2016 tax year. 8. As at 28 February 2015, Susan had an assessed capital loss of R which needs to be carried over to the 2015/2016 tax year. 9. In March 2015 she donated to Keith a domestic fixed deposit of R this was in order that they could both take advantage of the interest exemption. Interest received for the year by Keith on investments made was as follows: - Interest on the R mentioned above 2015/2016 R On cash at bank 2015/2016 R Shares all equities 2015/

5 Monthly income and expenses Susan alone Income Expenses Salary Trust Annuity Money Market Local Dividends Local Interest Offshore dividends Bond Camps bay Credit Cards Leases MV/ yacht Medical Expenses Household expenses Children education Income Tax????? Maintenance to spouse Total ?????? [if there are discrepancies in these figures please make an assumption] Susan s Retirement wishes: She requires an income of at least 95% of all her current income and this must escalate with 10% until her death. She wishes to retire at the age of 60 and income must be generated from provisions available until the age of 85. However being younger than Keith, she feels that by the time Keith reaches the age of 75 he will not be around anymore, and income needed for the remainder of the period, can be reduced BY 40%. For retirement provisions assume the following will be available to be cashed in at the time: The listed shares and the offshore investment. Susan has a valid will which states: 1. The Camps Bay holiday house valued at R to be left to the two children in equal shares.

6 2. To the children in equal shares: * the equivalent of the share value of ZX Pty Ltd of R in cash *Jewellery 3. The residue to devolve on Keith. 4. Susan is concerned on whether Keith will be able to financially look after Sally considering his lack of discipline with money so has appointed her sister as the guardian in the event of her death. For estate duty calculations assume expenses (not exec Fees),funeral costs and master fees amounted to R PART A - CASE STUDY FOR 1 AUGUST AND 6 TH AUGUST PLEASE REFER TO THE ANEXURE AT THE BACK OF THE ASSIGNMENT FOR ALL ASSUMPTIONS TO BE USED. YOU ARE REQUIRED TO: 1. Susan is not sure whether she has to become a provisional payer and therefore pay provisional tax Please explain to Susan whether she is required to register as a provisional payer, the reason for this, the thresholds, how often this has to be done, would it be different if she was older than 65? Please do this in report writing style and not in point form. You need to explain how the regulations work applicable to Susan. Susan, with regards to whether you need to register for provisional tax or not, we have to make reference to the 4 th Schedule which makes the provisions to this effect. As per the 4 th Schedule, and looking at only the fact that you are below the age of 65, a provisional taxpayer is someone who by way of income derives amounts that are not part of remuneration. If one looks at the income you earn, the following does not form part of remuneration (ie your salary received from your employment): Annuity from the Trust and Interest earned from your investments. From the year end of assessment 2016 the requirements are aligned amongst all taxpayers irrespective of age and it states under Para 18 that, you will be exempt from being a provisional payer if you do not carry on a trade and if:

7 Your taxable income does not exceed the threshold ; or Your taxable income that is derived from interest, foreign div and rental from the letting of fixed property will not exceed R Although you do not carry on a trade your taxable income will consist of your annuity of R which already in itself exceeds the threshold and then adding on your interest you will have to account for provisional Provisional tax takes place at least twice a year in August of the current year of assessment and the in February at the end of the year of assessment. Should one underestimate income, especially the August cycle (1) a 3 rd provisional payment can be made before the effective date to avoid interest. The effective date being 7 months after the end of year of assessment concerned. Susan, in concluding, you meet the requirements as set out in the 4 th Schedule and should therefore apply for provisional registration. 1.2 Calculate the tax payable by Susan for the 2015/2016 as a provisional payer (whether you feel she should register as one or not) Show all the calculations. 1.2 Gross income Salary Annuity from trust Money market Local div Local Interest Offshre div Interest on fixed dep to keith Fringe Benefit cover Gross Salary Exemptions Local dividends Interest Offshore dv 25/41 x Net income

8 Deductions Nil Taxable income Tax Less rebates Less medical rebates 0 (not on medical aid) Medical expenses R > (7.5% of ) R R = R X 25% Less paye (not mentioned so ignore) Total tax for the year /2 R tax for first cycle. Susan, without taking paye into account which one should should be paying an amount of R by end of August 2015 as her first provisional cycle for the year end of assessment 2015/2016. Should Susan want an estimate without paye, then one can very risky remove her salary to indicate how much of her other income may attract tax. NOTE: donations tax does not form part of provisional tax nor a person s year end of assessment for donation tax purposes. 2. Calculate the Estate Duty liability in Susan s estate if she has to die today. Show all calculations. Please use liability figures given which includes funeral costs and master fees BUT EXCLUDES Executor fees and CGT. Make the assumption that her marginal rate of tax is 41% Assume here that any taxes due as a result of the donations and Income Tax for 2015/2016 have been settled prior to death. Estate duty Calculation for Susan should she die today Capital Gains Tax Personal use assets BMW, artworks, Jewellery Cash not an asset Roll Over para 67 residue

9 Camps bay Proceeds formula x / = TABC [ ] = {(2/ 16) x ( )/1} {0,12500 x /1} = = Base cost of Proceeds Base cost Gain Shares in company Proceeds Base cost Gain Total gain Less death exclusion Gain At inclusion rate 33.3% at 41% Tax to be paid Accrual calculation Susan Keith Cpi adjusted / x 17.9/ Current assets BMW Merc Artworks yacht donated Camps bay residence Jewellery cash Cash shares

10 Units fixed dep donated Shares zx Listed shares Mm unit Offshore Deductions Camps bay yacht Liabilities total liabilities total Cgt fixed dep Ex husband Pmt N Iyr 7 Pv Cpi adjustment cpi adjustment Net assets net assets Property = / claim Susan has against Keith. BMW Artworks Camps Bay Holiday House Jewellery Cash Units Shares ZX Pty Ltd (inc keyperson policy) Listed Shares Money Market Unit Trust Offshore Investment (the annuity is ceasing not charged on property) Property Deemed Property Accrual claim Unnapproved life to children Policy A to Keith Policy B buy/sell exempt Policy C not exempt family company

11 (premiums + 6%) Deemed property Gross estate Deductions Executor fees = x 3,99% DEATH EXPENSES Total Liabilities Cgt Ex husband Section 4q deductions Policy A Section 4p deduction 50% of R2mil Estate before residue Residue Calc Less camps bay Less jewellery Less cash Less keyman Less approve cover Section 4q residue Net estate Less abatement Dutiable estate At 20% Apportion Keyman policy / x = Susan s estate duty liability in her deceased estate amounts to

12 R ( ) The company will be liable for the portion of the duty that the keyman policy attracts as this is a family company in relation to Susan. 3. Calculate whether the estate will have any liquidity problems and make recommendations. Use rate of R2.67 per R life cover if this is part of recommendation and explain how you would structure the policy and why. Again please address this question in report writing style applicable to your case facts. Solution, Susan, we need to consider whether, on your death, your estate has sufficient cash to meet all your debts and obligations. Ideally one would want to do this taking your wishes in your will and testament into account. But firstly, let us calculate whether there is sufficient cash: You will need cash to meet the following liabilities and bequests: Executor fees Total Liabilities Cgt Ex husband maintenance Cash bequest to children Death expenses Estate Duty Total needed Available Cash Units Shares buy back Listed shares MM Offshore Acrual claim Have Shortfall of

13 If we cover only this shortfall then it must be understood that the residue to Keith will be substantially reduced by the amount to the extent that he will have no residue. No residue it increase estate duty as we have reduced the 4q deduction, also some of the cash that is available are assets for CGT so we will be increasing the liabilities in the deceased estate which will not minimise the estate DUTY PAYABLE AS it will not be a deduction in the deceased estate. The idea is to perhaps increase the policy on the life of Keith to give him the amount needed without having to be concerned about residue. This may not necessarily increase the section 4q deduction to minimise duty but exec fees and liquidity. The maintenance to the ex spouse this will never be a 4q but it is clearly a debt against the estate and liquidity is needed. An insurance policy on her life payable to the ex spouse should be looked at. This way executor fees are a savings and she will not have to sell off assets. The amount of cash being bequeathed to the children should be considered whether by increasing the buy and sell policy to cater for the actual mv of the shares or then, thru the agreement being made that the sister has to pay capital outside of the deceased estate = not saving estate duty but saving liquidity and exec fees and having to sell assets Any shortfall thereafter can be covered with a policy payable to the estate has to cater for both duty and exec fees... 1 Policy to cover maintenance to spouse and agreement R /0.8 = / x 2,67 = R Buy and sell policy increased to cater for full MV R = / x 2.67 = R Cover at least the residue to Keith of R / x 2.67 = R Property Deemed Property Add Policy 1 for maintenance Policy 2 buy and sell exempt Policy to keith Gross deduction

14 Executor fees Total Liabilities Cgt Ex husband ( sars may not allow deduction) Section 4q deductions Policy A Additional policy Estate before residue Residue Calc Less camps bay Less jewellery Less cash Less keyman Less policy to ex ( ) Less approved cover Section 4q residue Net estate Less abatement Dutiable estate At 20% Apportion Keyman policy and ex policy / x = Estate = Now needs: Executor fees Total Liabilities Cgt Cash bequest to children Estate Duty Total needed

15 Available Cash Units Shares buy back Listed shares MM Offshore Acrual claim Have Shortfall of Now this is the policy needed for estate duty purposes / = R / x 2.67 = R Total premiums for recommendation: R Compare to if I made the first calc was totally insurance / = / x 2.67 = R Little more expense but: But have: ensure ex gets maintenance Ensure children get their bequest Ensure that Keith is given a little more money Exec fee from R to R half saving!! 4. What will Keith inherit from Susan s estate? [note that this is not contradicting the figures above just read and learn- we are looking at the very first calc and not after recommendations but you can use the same principle) He has residue of R but, add to this R which was the 4p deduction this is just a deduction for duty not an actual subtraction from the estate less duty that has to be paid of R He is left with (if we rely only on the first calculation) BUT this then again assumes that we DO NOT cash in assets for liquidity purposes.. if we do then he has no residue at all! 5. Susan is fully aware that she is not contributing towards her retirement and concerned that she may not have sufficient funds. Please advise her whether her retirement wishes can be met and if not, advise her what she can do to correct the situation.

16 Where applicable, advise her on the advantages / disadvantages of the recommendations made as well as any maximum contributions allowed for income tax purposes including any potential legislative changes. Again report writing style. Susan s retirement needs. As per your needs analyses completed, you would like to retire at the age of 60 which is in 14 year time (and a few months but we are rounding it off). Your current income is R and you state that you will need 95% of this, which will make a present value of R annually. At age of 60, you would like this income to increase by 10% a year. In our assumptions, you are comfortable that growth in any investment pre retirement will be at 9% and after retirement you will invest more aggressively to attract 11%. Although you need this income for 25 years, you believe that Keith will pass on at the age of 75 which will be 13 yrs after you turn 60. Thereafter, for the remaining period of 12, the income can reduce by 40%. [Keith is 2 yrs older so when he is 75 she is = 13 years after retirement] The calculation to determine whether you will have sufficient income at the age of 60 is determined as follows: Resultant rate: 11-10/1,10 = Income need 1 pyr beg mode PMT PV N 14 n iyr 7 iyr (inflation) PV AT AGE 60 FOR 13 YEARS FV Second set of income 1 pyr beg mode PMT PV N 27 N IYR 7 IYR PV AT AGE 73 FOR 12 YEAR FV BUT I NEED TO KNOW HOW MUCH I NEED AT AGE 60 SO THIS AMOUNT HAS TO BE DSCOUNTED BACK AT GROWTH RATE TO HER AGE 60. FV N 11 IYR PV

17 NEED AT AGE 60: = Provisions available Listed shares Offshore Investment PV PV N 14 N 9 iyr 9 iyr FV FV Total Provisions : R So you are way out of target with a shortfall of R In conclusion, with this small shortfall, it would be highly recommended that you review all your assets to determine if any other can be allocated towards retirement. Note to student: of course here depending on the question you can make many other recommendations : retire later, reduce annual need by relooking budget how much of this budget will still exist..no children education, lower household expense, lower medical expenses etc etc hence perhaps the need can be relooked. Where you are recommending the provision of other assets then you need to bring to their attention that this will affect other areas such as bequests made on death etc Alternatively, you can contribute towards a retirement annuity to make up this shortfall. Using the assumptions given you would have to contribute an amount, on an annual basis, starting at: FV N 14 9 iyr Pv /1,07 = 1,86916 (have used increase by inflation) N 14 Pmt If one looks at your taxable Non pensionable income being at R as per our income tax legislation you are allowed to contribute up to a max of 15% which equates to R Although your need will exceed this, you can contribute the lot budget given as, any amounts that exceed your contribution will be carried over to your retirement event and could possibly generate tax free annuity income as any unused deductions will exempt your compulsory annuity. Considering this perhaps

18 then an even lower income may be needed as it can be designed to make it tax free (knowing very well student that the Davis Commission and draft bill states that these contributions will be estate dutiable.) Student: or you can recommend some to an RA and the some to discretionary vehicles etc etc 6. Comment on Susans investment in line with her risk profile and where she is at in life ie her current life stage. This is subjective and we can debate left right and centre. 7. Comment in report writing style her wishes that her sister be appointed as Sally s guardian. a. What recommendations would you make to address her concern? (in any of the recommendations that you make take the vehicle/tool/recommendation further what legislation would one have to look at, what limitations would there be, what would one have to consider etc?) report writing. Susan, I am making reference to the clause in your will where you have appointed your sister as Sally s guardian and I am obliged to advise you on the potential problems with this request. In doing so, I make reference to the Children s Act of As per the Act, both parents (biological and married ) have equal guardianship over the children that have been born during the marriage. This means that Keith, being the biological father will have automatic guardianship of Sally. Keith will automatically be the natural guardian and will be appointed to take care of Sally. Section 27 only makes provisions for the appointment of a legal guardian where the natural guardian is the sole guardian which is clearly not the case. Should your sister object to Keith being the natural guardian, this whole matter could land up in court this can turn into an ugly battle and could very well see Sally in state custody until the matter is sorted out. I recommend that you consider other ways of ensuring that Sally is financially taken care of by perhaps by setting up a trust on death.

19 8. Please re-calculate Susan s budget / cash flow taxable based on any recommendations you made above. Anything you would like to point out to her perhaps? Monthly income and expenses Susan alone Income Expenses Salary Trust Annuity Money Market Local Dividends Local Interest Offshore dividends Bond Camps bay Credit Cards Leases MV/ yacht Medical Expenses Household expenses Children education Income Tax Maintenance to spouse Additional policies Retirement annuity???? depending which way you went! Total Tax: Taxable income Less Ra Taxable income The recommendations do increase cash flow into the negative even without the additional recommendations and reduction of income tax she was already in the negative. So the first thing she will have to do in conjunction with estate planning she can leave retirement for a while as the shortfall is minimal and if she does as recommended then she may not have a shortfall in retirement 1. her offshore shares can be sold as they are not performing and may not

20 Attract as much CGT at this stage this R can go into this can pay off the credit card saving her R a month. This can easily go towards the life insurance policies. He can use the remaining to cancel either the yacht or the MV whichever is attracting the highest interest this can save her an additional R 3000 (assumption as the expense is lumped together) Many other recommendations can be made but just the one above already saves her some money! 9. After implementation of the above recommendations, you have to forward to Susan a Record of Advice. Kindly summarise the information that is required to be included based on your findings and recommendations as per above. Reason for meeting Result of provisional go to tax practitioner Estate planning implementation of and commission etc = why products chosen, how it will benefit her. Change of will lawyer etc PART B CASE STUDY FOR 13 TH AND 15 TH AUGUST AND CASE STUDY PROG RAMME 29 TH AUGUST Keith has expressed his concern that he will now have to find employment as the income left from Susan s estate should she die, will not be sufficient. He would like you to assist him with some sound financial planning. You have obtained the following facts from him. 1. Assume that any new employment will generate a salary of R annually with no benefits with the exception of a medical aid paid by the employer to the value of R a year.[note that this value is not included in the salary mentioned above] This would then cover of 2 members himself and Sally. 2. In the event of his death he needs to ensure that the children are taken care of at least until their age of 25 years. After his budget exercise he advises that Rene will need R per year escalating at inflation (7%) and that Sally will require R per year escalating at inflation (7%). Assume, for this purpose, that any investment income generated in the event of Susan s death, will not be available on Keith s death.

21 Use rate of R2.67 per R of cover for any recommendations made. ADDRESSING QUESTION 1 WHICH MAKES REFERENCE TO ABOVE Rene is currently 24 years and a few days. She will need only for a year so effectively he needs to have R now! One payment only. Sally is 11 and a few months so she will need income for 13 years and 7 months. It is so close to a year than we can round off to 14 years but we can monthly the last requirement if one wants to be exact Pmt N 14 7 iyr PV Needs cover for R = R /0.8 = R / x 2.67 = r695, 90 premium THE FV OF EACH PAYMENT IS DISCOUNTED BACK TO CURRENT VALUE FOR EACH YEAR. HENCE A LOWER VALUE IN TODAY S TERMS. BUT IT MAY THEN BE MORE ACCURATE TO SAY: THE FIRST PAYMENT I NEED ONLY IN THE FIRST YEAR.. SO NEED ONLY WTH GROWTH ON THE 2 ND YEAR ONWARDS. SO WE NEED 13 PAYMENTS WITH GROWTH pmt N 13 7 iyr pv? = But SHOULD ONE SAY. I WILL BE DRAWING 7% ADDITIONAL EVERY YEAR DUE TO THE INFLATION INCREASE? RESULTANT RATE 7-7/1,07 = PMT N 13 IYR 0 PV? = COVER NEEDED OR SHOULD ONE TAKE INTO ACCOUNT THE BENEFIT INCREASE SELECTED ON A LIFE INSURANCE POLICY? IE IF I SAY THAT THE POLICY BENEFITS WILL INCRAE AT A RATE OF 9% PER ANNUM (NOT INVESTMENT GROWTH ABI = ANNUAL BENEFIT INCREASE?) THEN RESULTANT RATE OF 7-9/1,09?

22 TO VERIFY THIS CALCULATION: I I DO NOT WANT TO INVEST THIS MONEY SO THERE IS NO GROWTH RATE. BUT THE R WILL ESCALATE WITH INFLATION DUE TO THE EXPENSE OF MAINTENANCE. THE FIRST YEAR I WILL NEED ONLY AND ONLY 2 ND YEAR ONWARDS WOULD INCREASE WITH INFLATION. I ALSO DO NOT WANT ANY CAPITAL LEFT AFTER THE END OF TERM. I WILL TRY VERIFY ABOVE BUT AM SENDNG IN THE INTERIM SO THAT YOU CAN ALL START WORKING ON IT. 3. He has made no provisions for his Retirement as he was depending on Susan which he no longer wants to or can afford to!. He has always aspired to retire by the age of 55 and believes that he will survive until at least to the age of 90 despite of what Susan thinks. To continue with his modest lifestyle he would like to be able to receive some form of annuity to the value of R annually after tax [ ie this is the net amount he must receive]. He emphasises that this pension amount must increase with inflation after his retirement until his death. Assume a marginal rate of 41 %. a) You have to advise him on the amount of capital he will need to have at retirement age to retire comfortably. SOLUTON He is 48 needing to retire at 55 in 7 years, for 35 years until his age 90. He needs R net with a tax rate of 41% so /0.59 = R is the gross income needed. 1 pyr beg mode PV 7 iyr 7 N FV? Pmt N 35 Iyr 11-7/1,07 = (used post retirement growth and inflation As the pension escalation)

23 PV Keith, you require a capital amount of R in your bank account at the age of 55 to fund the income that you need for a period of 35 years. (so perhaps you should die when Susan says you should) b) Provide him with both a level and a escalating contribution that will be required to be invested now, to meet this capital requirement. LEVEL ANNUITY FV N 7 Iyr 9 PMT? ESCALATING ANNUITY FV N 7 Iyr 9 PV PV N 7 Iyr resultant 9-7/1,07 = 1, (used pre retirement growth and Inflation as premium escalation) PMT? Keith, your choices are investing either an annual contribution of R where the premium remains level or, you can opt for a premium which increases every year with 7% and then the first year premium will start at R You do not have the budget for either, so it may be a consideration to make certain provisions available to assist with your goals or Then you can do the normal recommendation, relook budget, retire later etc etc But then remember you cannot use the Shares as he has decided that this will be sold to meet the accrual claim! c) What other investment vehicles would you recommend for retirement savings to assist with, not only with capital growth but will be advantageous in his overall planning. Advise Keith on any tax benefits, maximum amounts, advantages and disadvantages etc In relation to his facts report writing.

24 RA : tax deductions, previously disallowed, 10C exemptions, lump sum taxation, pension fund act and 37C and creditors, deductions against lump sum limitations (37D), Reg 28, not estate dutiable Endowments four fund tax, sec 63 Long term insurance act, estate dutiable, no reg 28, no tax deductions, beneficiary nomination. Units tax and cgt, no protection, no deductions, estate dutiable, no reg 28 Tax free saving account: MAKE COMPARISON WITH RETIREMET ANNUity income tax regulates thresholds etc Etc etc Note: it was decided that he would sell the shares to settle any accrual claim that may arise on Susan s death. Monthly income and expenses Keith alone assuming Susan has died Income Expenses Salary Local Interest 5396 Local Dividend Bond Primary residence Credit Cards Medical Expenses Household expenses Children education Income Tax???? Entertainment Total ?????? YOU ARE REQUIRED TO: 1. Address his concerns in Point 2 above and advise how these policies will be set up best suited for his situation. Rate to be used for death cover R 2.67 for every R AS PER ABOVE 2. Address all his concerns and questions in point 3 above

25 3. Take that he sold an asset which attracted a taxable capital gain of R This was sold on the 1 July Please calculate his provisional tax first and second cycle. PROVISIONAL SALARY LOCAL INTEREST (REMEMBER TO REMOVE THE THAT WAS ATTRIBUTED BACK TO SUSAN) LOCAL DIVIDEND MEDICAL AID FRINGE BENEFIT GROSS INCOME EXEMPTIONS INTEREST (23 800) LOCAL DIV ( ) INCOME ADD CGT TAXABLE INCOME TAX ON THIS AMOUNT REBATES (13 257) MEDICAL X 2X 270 X 12 (6 480) CONTRIBUTIONS (6480 X 4) = MEDICAL EXPENSES = LESS (7.5% OF ) = X 25% (2 666) TAX PAYABLE LESS PAYE ( THEY WILL GIVE) REMAINDER DIVIDED BY /2 = HAS TO BE PAID IN AUGUST AND THEN SAME AMOUNT IF NOTHING HAS CHANGED TO BE PAID IN FEB 2016.

26 4 Take all factors surrounding his life and needs and advise him on whether he would be able to achieve all his goals if he keeps to his conservative approach. Advise him on how he should diversify his investments with regards to asset allocation. In doing so, please point out to him the tax implications of the assets (equities/ bonds, cash etc) that are being selected, and the effect it will have on his planning goals. Report writing. Debate as per some of my notes above.. 5 Keith is aware of this Trust that Susan and the girls are benefiting from. He understands that this was a Trust set up by Susan s father before he died but still, he is not impressed that he was left out of it! He is trying to encourage Rene to obligate the Trustees to account for monies in the Trust and to fire one of the Trustees (Susan s Sister) as he does not Trust her. He is suggesting that once Rene manages to get her Aunt fired then she can appoint a trustee in her place of course Keith then wants to be appointed the Trustee. Currently the Trustees are Susan (who was appointed as a Trustee in her Dad s will), Susan s Sister and their Brother Jack). Please comment and advise Keith on the above intention and anything else you feel may not be 100% aligned. REPORT writing. A trustee can lose office by way of removal. Can be removed by court if his continuance in office prejudices the welfare of the trust. The statute also grants the application to court for the removal from the office any person having an interest in the trust property Rene clearly has this interest. The Trust Property Control Act does not specify grounds for removal other than that the court should be satisfied that the removal will be in the interests of the trust and it s beneficiaries. Mere hostility between the trustees and beneficiaries, if it comes from the side of the beneficiary is not in itself sufficient grounds for removing the trustee but it the hostility Is based on the grounds of how the trust is being administered it will definitely be regarded. The Master can call upon a Trustee to account S16 and the trustee will have to hand over any document, accounts etc so that the Master can satisfy itself to the proper administration of the trust and S9 due care and diligence etc S19 failure by trustee to account or perform duties S 20 removal of trustee

27 6. Can you perhaps identify any other areas that you feel Keith should focus on? Will and Testament Disability and dread disease Full estate planning Redo budget Redo retirement taking other provisions into account. Etc. ASSUMPTIONS TO BE USED INFLATION 7% PRE RETIREMENT SAVINGS WILL ATTRACT 9% POST RETIREMENT SAVINGS WILL ATTRACT 11% OTHER INVESTMENTS 9% MAKE REASONABLE ASSUMPTION WHERE YOU NEED TO FOR LACK OF INFORMATION AS LONG AS IT IS IN LINE WITH THE PLANNING NEEDS FOR BOTH SUSAN AND KEITH.