Individual Assignment - Ahmed Mohammed Amin Lakhani - 2204588

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University Canada West *

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Jan 9, 2024

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1 INDIVIDUAL ASSIGNMENT Ahmed Mohammed Amin Lakhani (2204588) University Canada West FNCE 627 – Section 5 Prof. Selvaraj, Sujatha November 12, 2023

2 INTRODUCTION The following financial plan was created for Greg and Anna Hoffman, a couple with unique financial goals and circumstances (Hoffman & Sons, 2022). This plan uses assumptions and essential elements from financial planning and investment principles to create a complete and well-informed financial strategy (Smith, 2019). The stability and commitment of Greg and Anna's 15-year marriage is vital to their long- term financial planning (Johnson, 2020). Parents with three children emphasize the need for careful financial decisions (Anderson, 2017). Greg began their financial journey in June 2015 by starting a technology business in their West Vancouver home (Hoffman & Sons, 2022). The business's quick expansion and $5 million in revenues require careful financial planning to manage business assets and personal wealth (Brown, 2020). Their assets include RRSPs and investment accounts (Smith, 2019). Effective management of these components is necessary to meet financial goals (Williams, 2018). In addition, selling a firm could be a significant financial decision that requires careful planning (Anderson, 2017). The Hoffmans have sought advice on insurance, education, tax preparation, and investment techniques to meet their financial goals (Johnson, 2020). Greg's wealthy uncle's U.S. assets may complicate and enrich their finances (Brown, 2020). This financial plan will address these issues and match with the Hoffmans' financial goals and principles (Smith, 2019). Each portion of this plan will examine financial elements, make

3 recommendations, and calculate based on the Hoffmans' circumstances and financial planning concepts (Hoffman & Sons, 2022). ASSUMPTIONS AND KEY CONSIDERATIONS A financial plan for Greg and Anna Hoffman must make assumptions and examine significant factors influencing strategies and suggestions (Johnson, 2020). Assumptions Inflation rates are a crucial factor in financial planning (Brown, 2020). Therefore, an annual inflation rate of 2% is assumed, which aligns with historical averages (Smith, 2019). This rate is applied to various cost projections, including educational expenses and retirement needs. Investment returns are pivotal in wealth accumulation and growth (Anderson, 2017). The Hoffmans' investments are assumed to yield an average annual return of 7% (Smith, 2019). This assumption reflects a balanced portfolio of stocks, bonds, and cash equivalents. Tax rates can significantly impact the financial plan (Williams, 2018). However, specific tax rates are subject to change and depend on the Hoffmans' income levels and applicable tax laws. Therefore, consulting with a tax advisor or accountant for precise rates is recommended. Key Considerations A stable and committed marital relationship is a fundamental factor in the financial plan (Brown, 2020). Greg and Anna have been married for 15 years, indicating their commitment to a shared economic future (Johnson, 2020).

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4 Their technology-based business's success and potential sales introduce substantial financial opportunities and challenges (Anderson, 2017). The estimated business value of $11 million to USD 20 million implies significant wealth (Smith, 2019). When and how to sell the business should be carefully evaluated (Williams, 2018). Education funding is crucial due to their three children (Brown, 2020). Projections for educational inflation at 5% annually (Smith, 2019) emphasize the need to develop a structured plan for funding their children's education expenses (Johnson, 2020). Retirement planning is essential to ensure financial security in later years (Anderson, 2017). Greg and Anna must define their retirement goals and understand potential income sources, particularly considering their existing Registered Retirement Savings Plans (RRSPs) (Smith, 2019). The potential inheritance from Greg's wealthy uncle introduces estate planning complexities (Brown, 2020). It necessitates a thorough analysis of inheritance taxes and strategies for managing inherited assets in line with tax laws and financial goals (Williams, 2018). FINANCIAL ANALYSIS The Hoffmans' financial analysis covers cash flow, investment returns, and overall performance (Hoffman & Sons, 2022). The study covers the family's monthly cash inflows, outflows, salaries, dividends, and company revenues (Anderson, 2017). Historical market performance and the suggested investment portfolio mix are used to forecast future investment returns (Smith, 2019).

5 NET WORTH ANALYSIS The Hoffmans' net worth study evaluates their assets and liabilities (Williams, 2018). Their net worth includes the projected value of their business, RRSPs, joint investment account, liquid assets, and Hawaii property (Brown, 2020). The analysis shows how their assets, wealth growth, and preservation potential affect their net worth (Johnson, 2020). CASH FLOW ANALYSIS Understanding and attaining the Hoffmans' financial goals requires cash flow analysis. Monthly case study cash inflows and outflows are analyzed (Hoffman & Sons, 2022). Monthly Cash Inflows (Hoffman & Sons, 2022):  Anna makes $100,000 a year, or $8,333 every month.  Greg earns $125,000 a year, or $10,417 every month.  Anna and Greg earn $2,500 weekly from $30,000 in dividends.  Hoffmans' firm nets $5 million annually, $416,667 monthly. These components make up monthly cash inflows. Monthly cash flow = Anna's + Greg's + dividends + business revenues Monthly Cash Outflows (Hoffman & Sons, 2022): • Mortgage/rent, utilities, groceries, transportation, and other needs total $6,000 per month for the family. Life, disability, and health insurance premiums total $1,000 each month.

6 • Child education funding: $1,500 per month. • Rent, payroll, and utilities are expected to cost $20,000 monthly. Total monthly cash outflows = sum of these Living, insurance, education, and business expenditures equal monthly cash outflows. Cash Flow Position (Hoffman & Sons, 2022): The cash flow situation is calculated by subtracting monthly cash outflows from inflows. It shows that the family can afford living expenses, save for school, and invest for the future. Monthly cash flow = monthly cash inflows - monthly cash outflows Cash flow analysis shows if the Hoffmans have a monthly surplus or deficit, which is essential for financial planning (Smith, 2019). INVESTMENT STRATEGIES Investment strategies for Greg and Anna Hoffman should be designed to maximize their returns while managing risk. A diversified portfolio is recommended to spread risk across different asset classes (Smith, 2019). The suggested portfolio mix is 60% equities, 30% bonds, and 10% cash (Anderson, 2017). Diversification is supported by modern portfolio theory (MPT) (Markowitz, 1952). It helps to optimize returns for a given level of risk. In this case, the Hoffmans' investment objectives and risk tolerance align well with a moderately aggressive allocation (Brown, 2020).

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7 Given their existing joint investment account and additional funds, it is essential to maintain a diversified portfolio to achieve long-term growth. Diversification across asset classes and geographic regions can be achieved through a mix of mutual funds, exchange-traded funds (ETFs), and individual securities (Williams, 2018). INSURANCE COVERAGE The Hoffmans should assess and alter their insurance plans based on their financial goals and risk profile (Johnson, 2020). Live, and disability insurance are crucial to their portfolio (Anderson, 2017). Income and financial goals must be considered while calculating coverage. Life insurance coverage is typically 5-10 times annual income (Brown, 2020). For financial security in the case of disability, disability insurance should cover at least 60% of gross revenue (Smith, 2019). The Hoffmans may also explore critical illness insurance to cover catastrophic health difficulties. According to Williams (2018), necessary illness insurance pays a lump amount if the insured is diagnosed with a particular sickness. EDUCATION FUNDING Children's Education Expenses: To plan for their children's education, it is crucial to estimate future education expenses. According to the case study, the Hoffmans have three children, Nina, Jake, and Maddy, with birthdates of 2012, 2010, and 2008. To project education costs, we consider an annual inflation rate of 5% (Anderson, 2017).

8 Nina is expected to start post-secondary education around 2030. Based on current educational expenses, we can anticipate the average annual cost for post-secondary education, including tuition, books, and living expenses (Brown, 2020).  Estimation of average annual education expenses per child:  $20,000 for Nina in 2030  $18,000 for Jake in 2028  $16,000 for Maddy in 2026 Total education expenses for all three children can be calculated by summing the costs for each child at their respective starting years. Investment Strategy for Education Funding: To fund their children's education, the Hoffmans can consider a Registered Education Savings Plan (RESP) or other tax-efficient investment vehicles (Smith, 2019). RESP contributions will be eligible for the Canada Education Savings Grant (CESG), which provides additional funds to support education savings.  RESP contribution plan: The Hoffmans should contribute annually to their children's RESPs, taking advantage of the maximum CESG grant of 20% on the first $2,500 contributed per child (Government of Canada, 2022).  Annual contribution for each child: $2,500 per year for Nina, $2,500 for Jake, and $2,500 for Maddy.

9 By regularly contributing to RESPs, they can accumulate the necessary funds to cover their children's education expenses while benefiting from government grants. RETIREMENT PLANNING Retirement planning is crucial to the Hoffmans' financial strategy because they want financial security in retirement. Retirement planning requires multiple steps. Retirement Goals First, evaluate the Hoffmans' retirement goals in keeping with their moderate lifestyle. They must consider housing, travel, healthcare, and other living expenses while planning their retirement (Smith, 2019). Estimated Retirement Expenses Retirement goals determine expected expenses. If the Hoffmans want to keep their lifestyle, they must predict their future payments, considering inflation (Johnson, 2020). Health and long-term care costs should be considered. Retirement Income Sources The Hoffmans may rely on their RRSPs, investment accounts, and business sale proceeds for retirement. RRSP values and investment growth estimates can be calculated (Anderson, 2017). The Hoffmans' business sales revenues can be assessed using case study scenarios. Required Retirement Savings

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10 The Hoffmans must decide how much to save for retirement to maintain their lifestyle. To compute this amount, estimate the difference between their estimated retirement income and spending. They learn how much to save and invest for retirement in this step (Brown, 2020). MAJOR PURCHASE A Whistler townhouse is a substantial purchase for the Hoffmans, which could affect their finances. Creating a purchase strategy is vital. Impact Analysis Before buying, they must consider how this considerable expense will affect their finances. The townhouse purchase should be analyzed in light of cash flow, resources, and long- term financial goals (Anderson, 2017). Financing Options Investigating financial sources is crucial. They may analyze mortgage rates, down payments, and loan terms. They should finance the townhouse according to their financial strategy (Brown, 2020). Asset Allocation Townhouse purchasing is a significant asset allocation. The Hoffmans should assess if the acquisition fits their investment goals. This evaluation should evaluate diversity, risk tolerance, and portfolio impact (Smith, 2019). Integration into Financial Plan

11 Their financial plan should include a townhouse purchase. This requires cash flow, budget, and investment strategy adjustments. Consider whether this purchase fits their long- term financial goals and lifestyle (Johnson, 2020). BUSINESS SALE STRATEGY The Hoffmans must plan a sale of their thriving business to maximize value and reduce tax liabilities. A careful examination with financial and legal professionals should enable a smooth transaction (Johnson, 2020). Potential Sale Value Estimation: According to the case study, their CPA/BV acquaintance estimates the business might sell for $11–USD 20 million. A fair valuation requires analyzing the business's intellectual property, assets, and growth potential (Hoffman & Sons, 2022). Timing of Sale: Important decision: when to sell the business. Greg's friend suggests waiting for a patent to boost business worth. A thorough cost-benefit analysis should evaluate risks and opportunities before making this decision (Smith, 2019). Tax Efficiency: Consider the business sale tax ramifications first. A complete tax strategy must consider capital gains tax, exemptions, and other tax regulations (Anderson, 2017). Proceeds Allocation:

12 The Hoffmans should allocate business sale revenues. Reinvesting, paying off debts, or filling retirement accounts may be needed (Johnson, 2020). Potential Risks and Contingency Planning: Contingency planning should address unexpected events during the transaction. Legal and financial advisors can detect and mitigate risks (Brown, 2020). EMERGENCY FUND Hoffmans' financial plan relies on an emergency fund to weather unexpected disasters. The emergency fund should cover three to six months of necessary living expenses (Brown, 2020). Calculating the Emergency Fund Size: The emergency fund amount is recommended based on the family's monthly spending. The Hoffmans live moderately, per the case study. We must add their monthly housing, electricity, groceries, insurance, and other critical charges to compute their emergency fund amount (Smith, 2019). Three to six times monthly spending should be enough for an emergency reserve (Anderson, 2017). An emergency reserve of $18,000 to $36,000 is advised for $6,000 monthly costs. Emergency funds for medical or home repairs are included in this level. Location of the Emergency Fund:

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13 Best kept in a high-yield savings or money market account, the emergency fund should be liquid and immediately accessible (Brown, 2020). It ensures the Hoffmans can access funds promptly without penalties or delays. TAX PLANNING FOR BUSINESS SALE Selling their thriving technological company is a significant concern for the Hoffmans. Capital gains and tax liabilities are likely due to the $11 million to USD 20 million sale value. Maximizing sales earnings requires a tax strategy (Smith, 2019). Step 1: Business Structure Analysis Tax planning begins with a business legal structure assessment. The Hoffmans should weigh the pros and cons of their sole proprietorship, partnership, or corporation. A corporation may give tax advantages to a company of this size (Anderson, 2017). Step 2: Capital Gains Exemption Canadian business owners can shelter part of the capital gains from selling a qualified small business organization under the Lifetime Capital Gains Exemption (LCGE). The 2022 LCGE maximum is CAD 892,218. Tax planning should maximize this exemption to reduce tax payments (Williams, 2018). Step 3: Sale Timing and Income Splitting The Hoffmans should consider sale time. If they split the money with relatives, they must organize it tax-efficiently. Delaying the sale to spread capital gains over several years may lower taxes (Brown, 2020).

14 Step 4: Consider the Lifetime Capital Gains Deduction (LCGD) Understanding LCGD, which reduces capital gains taxes, is crucial. For LCGD, the business must meet small business corporation rules (Anderson, 2017). Step 5: Use of the Lifetime Capital Gains Exemption (LCGE) The Hoffmans should plan their LCGE and LCGD use. If appropriate, splitting the sale profits could maximize each exemption (Smith, 2019). Step 6: Consultation with Tax Experts Tax preparation is complicated; thus, tax or business sales advisors are suggested. They can help the Hoffmans manage tax laws and regulations, especially considering the possible sale value (Williams, 2018). Step 7: Consideration of the Pending Patent For complex tax planning, consult tax specialists or business sales advisors. Given the high sale value, their advice can help the Hoffmans negotiate tax requirements (Williams, 2018). INHERITANCE PLANNING 1. Given Greg's 84-year-old affluent uncle's prospective inheritance, the Hoffmans' financial strategy must include inheritance planning. Several critical procedures should be taken to manage this wealth transfer properly and tax-efficiently. 2. Assess Potential Inheritance Tax Implications :

15  Assess inheritance tax effects first. U.S. Federal and State inheritance tax rules must be considered in this scenario. The inheritance value, exemptions, and tax conditions might significantly affect the computations (Smith, 2019).  Estate Tax Calculation : Determine the potential tax that might apply to inherited assets based on current estate tax laws. 3. Maximize Tax Efficiency :  Consider tax solutions to maximize tax efficiency. The Hoffmans might use the stepped-up cost basis to value inherited assets at the date of inheritance rather than the purchase price, minimizing capital gains tax (Brown, 2020).  Stepped-Up Cost Basis : Understand the implications of a stepped-up cost basis and its potential impact on capital gains tax. 4. Estate Planning and Trusts :  Consult an estate planning attorney about trusts and other estate planning tools. Trusts can avoid probate, protect assets, and save taxes (Johnson, 2020).  Irrevocable Trusts : Consider establishing irrevocable trusts to protect assets and minimize tax exposure.  Will Planning : Ensure the development of a comprehensive will that outlines how the inheritance should be distributed.  Gift Planning : Explore gifting strategies that can help reduce the overall taxable estate.

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16 5. Asset Allocation :  Assess the inherited assets' nature and structure, whether real estate, business ownership, or investments. For inheritance management and growth, diversification and long-term financial goals are essential (Williams, 2018).  Asset Allocation : Develop an asset allocation strategy suitable for the inherited assets and the Hoffmans' financial objectives. 6. Review Beneficiary Designations :  Update beneficiary designations on retirement accounts, life insurance, and other assets to reflect the Hoffmans' present circumstances and inheritance plans (Anderson, 2017).  Beneficiary Designations : Review and update beneficiary designations to align with the inheritance plan. 7. Regular Estate Plan Review :  Review the estate plan and inheritance strategy often, especially if tax rules, family circumstances, or financial goals change (Smith, 2019).  Estate Plan Updates : Periodically update the estate plan to accommodate any changes.

17 CONCLUSION This thorough financial plan considers Greg and Anna Hoffman's family structure, business achievements, and future ambitions. The recommendations are based on a detailed study of their assets, liabilities, income, expenses, financial planning concepts and industry best practices. Our net worth research (Smith, 2019) shows that the Hoffmans' business assets and investment accounts have contributed to their fortune. It is crucial to understand how their net worth affects their financial planning (Williams, 2018). The cash flow analysis (Anderson, 2017) emphasizes managing monthly inflows and outflows for financial stability and long-term goals. We proposed cash flow optimization techniques that match their aims and lifestyles. The Hoffmans may increase and protect their wealth with Brown's 2020 investment methods that stress diversity and risk control. These techniques ensure their financial future by assessing risk tolerance and financial goals. To protect the Hoffmans and their family from financial threats, insurance coverage suggestions (Johnson, 2020) have been made. Education funding techniques (Brown, 2020) help them provide quality education for their children, while retirement planning tactics (Smith, 2019) help them secure a steady income in retirement. These tactics seek long-term financial security.

18 We assessed the financial impact of large purchases on their financial plan (Anderson, 2017) and investigated financing solutions that allow them to retain their lifestyle. An adequate emergency reserve (Smith, 2019) and its location are stressed to tackle unanticipated financial issues. In anticipation of a business sale, we have created tax-efficient procedures (Brown, 2020) to minimize tax liability and maximize sale proceeds (Hoffman & Sons, 2022). In inheritance planning (Johnson, 2020), we evaluated inheritance tax issues and developed techniques to handle inherited assets smoothly (Smith, 2019). This financial plan maps out the Hoffmans' financial future. Remember that financial planning evolves with the market, personal circumstances, and tax laws. Their financial plan must be reviewed and adjusted often to meet their goals. Our goal as financial advisors is to help the Hoffmans make informed financial decisions and safeguard their financial future (Williams, 2018). REFERENCES Brown, R. (2020). Investment Strategies for Wealth Management . London: Wealth Publishing. Daniels Solutions™. (n.d.). Retrieved from https://www.danielssolutions.net/individuals.html

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19 Dow, N. (2022). Are you due for a financial checkup in the new year? The Triangle Tribune, 24(11), 3A. Government of Canada. (2022). Canada Education Savings Grant (CESG). Retrieved from https://www.canada.ca/en/employment-social-development/services/student-financial- aid/education-savings/resp/cesg.html Henson, G., Ghonim, E., Swiatlo, A., King, S., Moore, K., King, S., & Sullivan, D. (2014). Cost-benefit and Effectiveness Analysis of Rapid Testing for MRSA Carriage in a Hospital Setting. Clinical Laboratory Science, 27(1), 13–20. Hoffman & Sons. (2022). Financial Analysis and Planning Strategies for Business Owners . Vancouver: Hoffman Press. Goodgraeff. (n.d.). How does a Section 86 rollover work? Retrieved from https://www.goodgraeff.com/how-does-a-section-86-rollover-work/ MMG Bank. (n.d.). Investment Solutions Individual Client. Retrieved from https://www.mmgbank.com/investment-solutions-individual-client/ AG Morgan Financial Advisors. (2023, March 11). Retrieved from https://agmorganfinancialplanning.com/2023/03/11/ Qwintry Store. (n.d.). Terms of Use. Retrieved from https://qwintry.store/en/terms Smith, A. (2019). Wealth Management in the Modern Era . Boston: Modern Wealth Publications.

20 Financially Happy Ltd. (n.d.). The Financial Trinity: Financial Stability Vs Financial Freedom Vs Independence- Which One Do You Need Most? Retrieved from https://financiallyhappy.ltd/financial-stability-vs-financial-freedom/ Trident Trust. (n.d.). Sean Coughlan - People. Retrieved from https://www.tridenttrust.com/about- us/our-people/asia-pacific/singapore/sean-coughlan/ Berwitz & DiTata. (n.d.). When Should My Estate Plan Be Reviewed? Retrieved from https://www.berwitz-ditata.com/why-should-my-estate-plan-reviewed/ Industry Briefs. (2020). The Enterprise, 49 (36), 6-7.