ESTATE PLANNING CASE STUDY

FINC 355 RETIREMENT AND ESTATE PLANNING

Estate Planning Case Study #2

1

A couple, Carol and Al French, in their mid-60s, New York State residents, have seen their

net worth balloon from $3 million to more than $6.5 million during the last four years, chiefly

through rapid appreciation of a stock portfolio primarily invested in large-capitalization growth

stocks. The client had read articles in financial publications about the ·near total confiscation of

IRAs upon the death of the last to die of the account holder or spouse. The client has

approximately $1.25 million in these types of plans, with his wife listed as the beneficiary. He

had planned to hold the stock portfolio for life in order to get a step up in basis, avoiding capital

gains taxes for himself and his heirs. He also planned to name his wife as beneficiary of all

IRAs in order to assure her of a source of income if she survived him. The client also had a

number of charitable bequests in his will.

The client had more than 40% of his investment holdings in a single large- cap stock and

was growing concerned about the lack of diversification. He wanted to diversify his portfolio while

avoiding federal and state long-term capital gains taxes. Calculations determined that there were

potentially tremendous net after-tax benefits available to the client’s children if they, rather than

the spouse, were named as primary beneficiary on some or all of these IRAs. However, the

client remained concerned about his wife’s financial well-being if his IRAs were left solely to

the children.

The client had several competing objectives:

1. Diversifying the investment portfolio, selling off $1-1.5 million of the single large-cap stock which dominated the portfolio. (He would still maintain over $1 million of that

stock after these sales.)

2. Minimizing and, if possible, avoiding capital gains tax on the sale of any stock.

3. Assuring sufficient cash flow for the rest of the client’s and wife’s lives (about 30 years).

4. Minimizing transfer and income taxes so that the children and grandchildren receive the greatest amount of net assets possible from the estate.

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