Samantha Nikon Is 62 Years of Age and Is in the Process

question 26

Essay

Samantha Nikon is 62 years of age and is in the process of finalising her estate planning requirements and is seeking to make her will as simple as possible whilst taking advantage of any concessions available in the relevant taxation laws. Unfortunately Samantha has a serious illness which has required her to recently finish work and it is unlikely that she will live beyond the end of the current year. She is happily married to William (64 years of age) and has 2 adult children, Audrey and Max (29 and 27 years of age), who are both financially independent.
Samantha presently has the following assets (estate and non-estate) valued at their current market value in her own name:

$\begin{array}{llr} \text { Detail}& \text { Amount}\\ \text { Various shares in listed } &1,500,000\\ \text { companies} &\\\end{array}$

$\begin{array}{l}\text { (all purchased for } \\\$ 135,000 \text { in } 1983)\end{array}$

$\text {Superannuation allocated as:}$

$\begin{array}{ll}\text { Tax free component } & 300,000 \\\text { Taxable component } & \underline{1,200,000} \\\text { Total superannuation } & \underline{1,500,000} \\\text { Total assets at market } & \underline{\underline{3,000, 000}}\end{array}$ Samantha has decided to allocate her total assets in the event of her death
in the following proportions:
$\begin{array}{ll}\text { Name }&\text { Proportion (\%) }\\\text { William } & 50 \\\text { Audrey } & 25 \\\text { Max } & 25\end{array}$ As William has always had an interest in shares Samantha had thought that perhaps she will allocate her husband the total of the shares she owns in specie and each of the 2 children 50% of the superannuation balance. Samantha seeks to have her wishes documented in a formal will. Samantha has approached you for comment as to whether this is the most appropriate allocation of assets.
(a) Provide some comments to Samantha as to whether her request is appropriate to be documented in her will.
(b) Based on the market values as shown in the question and assuming that the shares are immediately sold after distribution to William and the superannuation is paid out as a lump sum to the children, calculate the after-tax cash flows available to each of the members of the Nikon family (as a dollar amount and percentage of the total distribution) should Samantha pass away with the above assets distributed to the family members in specie, in accordance with her wishes. Ignore the effects of the Medicare levy in your calculations.

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Definitions:

Machine-Hours

A measure of the amount of time that a machine is operated, used as a basis for allocating manufacturing overhead.

Variable Manufacturing Overhead

The portion of overhead costs that varies with production volume, including utilities and indirect labor expenses related to manufacturing.

Fixed Manufacturing Overhead

Costs in manufacturing that do not vary with the level of production output, such as salaries of managers and depreciation of factory equipment.

Machine-Hours

A metric for the amount of time a machine is operational, typically used in manufacturing processes.