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John Lau is a successful businessman

Finance

John Lau is a successful businessman. He is 55 years old and has been married to Jenny Law for 30 years. They have two grown-up sons. When John was young, he had a relationship with his secretary Candice Ko and they had a daughter together. While he discontinued his relationship with his secretary, John supported his daughter’s living expenses after she was born. He loves all his children (two sons and one daughter) and would like to leave his wealth to them. John wishes to leave 20% of his wealth to each son, 50% to his daughter, and 10% to Jenny. He does not have a will and he has approached you to ask for estate planning advice. During your conversation with him, he is only interested in putting together a will but not in other aspects of estate planning. John does not want his wife to know that he has a will.

(a)

Explain two advantages of having a will with regards to John’s wish to leave his wealth to his family members.

(10 marks)

(b)

If John has a valid will in place when he passes away, discuss some of the other problems in terms of estate planning?

(15 marks)

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A) 1) the most common and biggest benefit of a will is that one gets to choose the way he intends to leave his assets amongst his loved ones. This can be very detailed oriented as to be in percentages or also mentioning specific assets for someone. The will helps to get each family member the share you want them to without any disturbances or disputes. Rather than having a court do it, you do it yourself which saves a ton of legal fees and also maintains harmony in the family.

2) All assets revealed and listed : Often, when someone with many assets dies without a will, the successors or beneficiaries are unable to find and claim assets because some don't know that they even exist and opens risk towards leaving properties abandoned or possesed by someone else. A Will solves that problem by listing down all assets by the owner itself. This saves us from the risk of abandoning properties or spending considerable amount of time and money to find them out.

B) 1) Attorney Fees - Once you are gone, it is not possible to control the legal fees. The best way to do this is to incur them while you are alive and pay for it fully to a firm. Legal bills can rack up very high especially if family members decide to engage into legal battles.

2) Name Successor Trustees - It is necessary to name backup trustees and executors in the will so that a court intervention is not required. A court intervention can cost highly in legal fees and also take significant time to clear up.

3) Successor Beneficiaries - In the event that the beneficiaries die with you or are dead before execution of the will, it helps to name successor benficiaries to avoid legal battles and clearly indicate the person the property should go to.

4) Tax Planning - With the beneficiaries sometimes spread out across different tax jurisdictions and often tax rules not lining up with each other, there can be very significant tax expenses, so it Tax planning is required in Estate planning so as to minimise taxes and maximise wealth transfer.

5) Asset protection - If the person themselves has high debt, or may do so in the future, it may be benfitical to consider making additional efforts to protect the assets from creditors claim after demise. This can be done by creating trusts in the name of children. Also, this protects the assets sometimes from creditors / claimants of the beneficiary too like in times of divorce, bankruptcy, etc (of the Successor)