WEALTH PLANNING
Introduction
Financial planning is the main pillar in achieving business goals. The sad reality is we must plan based on what we own right now or what are a hundred percent sure to hold in the future. The uncertainty which comes with life again forces us to make every bold step with precision and sound reasoning. It is not just the financial perspective but even our health and the future of those around us, who we may term as dependents. The ultimate decision made by the two of you, Richard and Stephanie will be affecting both your dependents, you and your parents. For now, your plan must be confined within the net income you both earn from the salary, the net property you own, and an estimation of the number of years before you become official owners of your parent’s wealth. Then you must bear in mind the future of your dependents. Therefore, the need for a short term, mid-term and long-term financial plan is fundamental.
Financial Plan
| Short term | Mid-term | Long-term |
| Will | Clear mortgage loan in 1year | Future inheritance |
| Credit | Fully pay the car loan in 1year | Post-retirement income |
| Sell Stephanie’s flat and painting |
Short-term financial plan
The agony of losing a loved one is sad and sickening. The aftermath could be peculiar if the parent did not plan on the sharing of the properties they have left behind. It extends beyond sibling rivalry to wars with the government authorities, which at extremes engage the tribunals. It is necessary then that Richard and Stephanie seek financial advice on how best to share their properties amongst their dependents. The family also has recurring expenditure like fuel costs; this needs to be paid for using the money held in Stephanie’s credit card. The advantage of making general payments using the credit card will be its semi-liquidity compared to cash, which is highly liquid and is bound to extravagance.
Mid-term financial plan
The outstanding mortgage of £22,000 should be part of your mid-term priority. The settlement will allow for the elimination of the regular monthly payments, which are burdensome. Also, this will pave the way for better planning for the future as the number of expenses will have been reduced by a similar amount. The car loan of £11,500 can also be paid for from the couples’ salary without much financial constrain. This is achievable by doubling the monthly payments such that at the end of the first twelve months, both mortgage loans and car loans are cleared. The extra amounts to repay the loans can be obtained by cutting off holiday and social expenses by a certain margin.
Stephanie has a plan to sell her flat located in the South of England with a value of £210,000. The fact that she already has an idea on how to spend and invest the proceeds from the sale of the flat makes it a mid-term plan. The panting valued at £19000 left to her by the grandmother should also be disposed at this time. Through the two sales with a total of £239,000 before taxation. She will have enough capital to pay for their expenses and even invest some part of it for Emily’s education and the family’s future life post-retirement.
Long term financial plan
The family is expecting an inheritance from the parents, and it is more likely they will be the beneficiaries of the estate. The will supports Their status as the inheritors unless changes happen, which is very unlikely. The Dando family must now plan on how they want to manage their vast properties once they inherit them. Again they must be concerned about how the house they currently occupy will be maintained if death knocks before Emily becomes of age.
Life after retirement should be a reminiscence of the good old working days. Life should be miserable due to lack of planning `make hay while it shines.` Therefore, a working plan should be formulated to ensure a comfortable and enjoyable life past retirement. Ideally, this will entail robust planning with the available resources. The program should have a mainstream cash inflow to the family regularly and do not affect the spending patterns nor deprive the family of the beauties of life and essential goods and services.
Financial projections
The graph is prepared under the assumptions; no salary increments from their respective employers. Both retires at the age of 60. The salary remains untouched for the entire period until both couples retire.
If the assumptions are a reality, then the couple will have a total of £636600 as their total income from now until the date Stephanie retires from active employment. There is also additional income from the sale of the property, that is, Stephanie’s flat in the South of England and the painting totaling to £239,000. The family’s total income from employment combined with other income sources like sale of the property is £875600. If they decide that Stephanie retire at 55years, the net employment income from now till she retires is £381,600. This means they would be letting go of £255000 of income from employment. In reality, this is practically impossible since the family has to pay for their monthly expenses, among others. They also have to incur tax expenses once the flat and painting is sold off. From the annual salary, the monthly income is £6550, and the monthly payment is £4310. The family is left with a budget surplus of £2240, which is that the employer makes the pension contribution.
Some of the expenses, like mortgages and the car loan repayment, is coming to an end in two years. Therefore, the family will some extra coins to save for the future.
Part B.
Advice regarding the pension reforms of 2014/2015
Pension for Richard
- Pension for Richard from the television company
The pension scheme is for 19 years, and the full benefits are due in the year 2022 when he will have attained 60 years. The annual pension is 19,740 pounds and also has a compulsory lump sum, which is tax-free of three times the amount of money required. Then the lumpsum payment of the pension will be 19,740*3= 59,220 pounds. The total transfer value of all his retirement is valued at 550,000 pounds. Therefore, he does not any longer to the scheme.
- The next pension from the National Health Centre
The yearly salary from the National Health Service is 28,500 pounds. Then the annual pension from the annual salary is 6,130 pounds, which is payable in the year 2022 when he will be at the age of 60 years. The lumpsum is tax-free and is three times more the pensionable amount. This is 6,130*3= 18,390 pounds.
- The in-service benefit
There is the life insurance of 53,500 pounds, which is allocated to Stephanie as a survivor pension. Overall lump sum which is owing as pension for Richard is 59,220 pounds+18,390 pounds= 77,610 pounds. The annual pension income due to Richard is 19,740 pounds+6,130 pounds. This adds up to 25,870 pounds. The total pension, which is due in total, is 77,610 pounds+25,870 pounds. This adds to 103,480 pounds. The lumpsum is tax-free, but the annual pension is taxable at 20%, and therefore Richard will enjoy his earnings from the pension schemes.
Pension for Stephanie
- She is from the teacher’s annuity scheme since she is a lecturer at a local university.
- She has been in the teaching sector for quite some time.
- The teacher’s pension scheme for some years since she is a senior lecturer.
- She contributed 10.2% of her yearly wage, which is 50,100 pounds. This adds up to 5,110 pounds.
- There is some entitled pension, which is 2,300 pounds per annum. The forecast is made in such a way that it is in a position to buy some annuity (Parker, 2019). Stephanie will start to earn more since she will be retiring at the age of 67 as opposed to when retiring early at the age of 60 years.
- the private defined contribution pension with Sun Life monetary has a total fund of 74,800 pounds, and this will, at the end, earn an annuity of 2,000 pounds when she will at the age of 65 years.
PART C.
Advice regarding the capital gains and inheritance taxation
- Money gains tax on Stephanie’s house
- Acquisition price= 62,000 pounds
- Retailing price= 210,000
- The capital gains tax= 28%*(210,000-62,000) = 41,440
- The amount received= 210,000 pounds-41,440 pounds= 168,560 pounds.
- Inheritance from Richard’s grandfather
- Amount= 17,000 pounds
- It is subjected to an inheritance tax which is 40% of the 17,000 pounds
=6,800 pounds tax due
- Inheritance from Stephanie’s grandparents
Amount= 5,000 pounds
This will be subjected to a 40% inheritance tax, and therefore it will be 40%* 5000
= 2,000 pounds tax due
PART D.
The investments option for both Richard and Stephanie
| Options | Description |
| Equity mutual funds | Capital mutual funds primarily invest in inequities. As per the present Indian Securities and Exchanges Board (SEBI) Money market fund Rules, an investment money market scheme must contribute at least 65 percent of its resources in equity and assets-related items (Wright, 2019). An investment fund may be professionally managed or actively operated. For the actively managed fund, the gains are highly dependent on the capacity of the money manager to produce profits. Index of assets. .. |
| Equity | Investing in the stock market cannot be an idea of a good time for all, because it is a volatile asset class, and there’s no assurance of gains. Besides, it is not only challenging to select the correct inventory. It is also not simple to scheduling your entrances and exits. The only bright spot is that, throughout a prolonged period, equity has so far been capable of delivering higher yields than interest rates-adjusted returns relative to all other investment groups. |
| Debt mutual funds | Debt funds are suitable for shareholders who want to have a stable yield. They are less unpredictable and, therefore, less volatile than bond funds. Debt investments mainly engage in specified-interest securities such as government bonds, treasury securities, treasury notes, certificates of deposit, and other mutual fund tools. The 1-, 3-, 5-year business return is roughly 6.5 percent, 8 percent, and 7.5 percent overall. Learn all about bond funds debt. |
| National pension scheme | The Government pension System (NPS) is a lengthy-term pension-focused savings program operated by the Pension scheme Regulatory and Management Authority. The minimum monthly payment (April-March) for the NPS Tier-1 fund to stay involved has been deducted from Rs 6,000 to Rs 1,000. It is a combination of shares, fixed investments, government bonds, surplus funds, and government bonds, amongst others. |
| Public fund | The Public Fund (PPF) is one commodity that many people are turning to. Since before the PPF has a long-life expectancy of 15 decades, the effect of mitigating subsidy-free interest rates is enormous, particularly in later life. Therefore, because the interest received and a sovereign promise backs the principal spent, this makes it a secure asset. |
| Bank deposit (fixed) | Bank Deposit (fixed) is a smart choice for investment in Asia. Below the Bank deposits and Credit Assurance Corporation (DICGC) laws, each borrower in a bank is protected up to a limit of Rs 1 lakh both for the nominal value and the interest accrues. One can opt for weekly, quarterly, quarter-yearly, yearly, or accumulated interest options as needed (Thomas, 2020). The rate of interest gained is applied to one’s revenue and is paid on one’s revenue slab. |
| Bonds (taxable) | The state replaced the original 8 percent Investment (Taxable) Bonds in the year 2003 with the 7.75 % Savings (Taxable) Bonds. Such securities start with a period of seven years. Securities may be provided in demat type and allocated to the shareholder’s Bond Database Account (BLA). A Certification of Holdings shall be provided to the borrower as evidence of ownership. |
| Real estate | The area you live in is for life-consumption and must never be regarded as an asset. If you’re not planning to stay in it, your investment might be the new property you’re purchasing. The position of the property is the main factor that determines the quality of your land, as well as the rent that it can receive. Assets in property investment generate returns in two forms capital growth and rents. Nevertheless, unlike any other commodity. |
Part E
Mortgage calculation for Olivia
- The value of the property is 70,000 pounds, then Olivia will deposit 15% of the 70,000, which is 10,500. The rate of mortgage loans is 5% over the 25 years. Then, 70,000-10,500 is 59,500. Then the amount is subjected to 5%, which will be 59,500 pounds*5%= 2975 pounds. The amount is multiplied by 25 years, which will add up to 74,375 pounds. This amount is then added to 59,500 pounds, which will result in 133,875 pounds. Then the amount is divided by 300 months to obtain the amount needed per month. One hundred thirty-three thousand eight hundred seventy-five pounds/ 300 months will add up to 446 per month.
Appropriate mortgage options that Olivia can engage in
- Conventional mortgages; A traditional mortgage is a home mortgage that is not guaranteed by the state government. There will be two forms of conventional loans: adhering and non-compliant loans. An adhering investment essentially means the amount of the mortgage fits under the boundaries set by Fannie and Freddie or Freddie Mac, the government entities that fund most of the U.S.U.S. loans. At the other side, mortgages that do not comply with these requirements are officially considered-compliant mortgages. Jumbo mortgages are by far the most common type of non-compliant loan.
- State insured mortgages; The U.S.U.S. government is not a mortgage company, but it does play a big part in making more People be buyers. Three government agencies are issuing loans: the Housing finance Association (FHA mortgages), the U.S.U.S. Department of energy, and the United States Ministry of Health and human services.FHA mortgages: sponsored by the FHA, such mortgages contribute to making owning a home feasible for lenders who do not have a significant down price available and who do not have perfect loans (Aggarwal, 2019). Nevertheless, the credit history of 500 is approved down by at least 10%. FHA mortgages need two home loan prices: one is charged in full, the other is charged out yearly for the duration of the loan if you pay less than 10%. This can raise the overall cost of your investment.
References
Aggarwal, N., & Singh, H. (2019). Women and Wealth: Financial Propinquity to Business Success. Australasian Accounting, Business and Finance Journal, 13(2), 69-87.
Thomas, K. D. (2020). How Should We Think about Wealth Tax Avoidance. Jotwell: J. Things We Like, 1.
Wright, D. C. (2019). Disrupting the Wealth Gap Cycles: An Empirical Study of Testacy and Wealth. Wis. L. Rev., 295.
Parker, F. J. (2020). Allocation of Wealth Both Within and Across Goals: A Practitioner’s Guide. The Journal of Wealth Management.
KAMARUDIN, M. K., MUHAMAD, N. H. N., Suhaili, A. A., ABDULLAH, A. H., Syahrulnizam, S. A. A. T., & SAMURAH, N. O. (2020). Inter Vivos Transfers Based on Affection for Wealth Distribution Planning in Malaysia. The Journal of Asian Finance, Economics and Business (JAFEB), 7(4), 299-307.