Breifly list the goals you would like to accomplish for your clients in this reccomendation.
Sheldon and Amy Cooper have come to wxu, a financial planner, for help in developing a plan to accomplish their financial goak. The Coopers realize they have not done the best job mansging their finances and keeping records and have decided to seek professional advice. You have explained the financial planning process to them, and as a result, they have asked that your plan include the next step to further consider or implement your various recommendations and ideas, Assume today is January 1,2023. Personal Background and Information Sheldon Cooper (Age 37) Sheidon is the owner and manager of Big loey's Bar and Grill (Big loev's), a small neighborhood bar that is open Monday through Saturday from 4:00 pm to midnight and closed on Sundays. Sheldon inherited the bar four years ago from his uncle Joey. Although academically capable. Sheldon briefly attended State University but did not graduste, choosing instead to work alongside his uncle. Sheldon has always had an entrepreneurial spirit, and he likes owning the bar and carrying on hlis uncle's legacy. Joey was a star nunning back on the State Unversity football team. Big Joey's is somewhat of an institution among State University students and also quite popular among local residents. Amy Cooper (Age 37) Amy works as an elementary school educator at Anvown Private Elementary School, located a few blocks from the Coopers' home the has been employed by the school for 15 years. She graduated from State University and met Sheldon at 8ig Joey's during her senice year: Sheldon and Amy have been married for 11 years. They both plan to retire in 25 years. They have three children and do not plan on having any more. Children Bradloy, age 10, attends Amytown Private Elementary 5 chool and is in the fourth grade. Brea, age 5, also attends Anytown Private Elementary School and is in kindergarten on a halfday schedule, Brea spends Monday through Friday sfternoons during the school year at an excellent day care center owned and operated by good friends of the coopers. The center also offers an academic enrichment program for the children. 1 Anytown Private Elemeatary School provides a 50% ruition discount for enrolled students who Anytown Private Elementary School provides a 50% tuition discount for enrolied students who are children of faculty and staff members of the school. Blaire, age 2, attends the same day care center as Brea nine hours a day, Monday through Friday, and also benefits from the enrichment program for her age group. The cost of the day care for Brea and Blaire is paid by the couple, but Brea is receiving additional instruction in french. The additional cost of $200 per month for Sara's French class was paid for by Amy's aunt, Belle, who was a strong proponent of children learning foreign languages, untia her death. The Coopers were close to Aunt Belle, naming the children with names beginning with the letter " B " as a tribute to her. When she died last October, she bequeathed the following to her great-nieces and great-nephew: - Bradley-Municipal bonds that had an FMV of $50,000 at Aunt Belle's death and a basis to Aunt Belle of $20,000 - Brea-Preferred stocks that had an FMV of $48,000 at Aunt Belle's death and a basis to Aunt Belle of $10,000 - Blaire-A nonqualified, single premium tax-deferred annuity, which Aunt Belle purchased for $10,00020 vears ago and which had an FMV at her death of $40,000 Amy has asked you what lump-sum- T. future college costs, She asked you to assume cach child will begin college at age 18 and graduate in four years. Assume current costs are $23,000 per year and are expected to increase by 4% per year, Any inherited funds will not be considered for college funding at this time. The Coopers would like you to use the 7% investment return assumption that is referenced under Investment Data for this goal, They would also like you to assume all funds will be invested in a Section 529 plan. Grondporents Sheldon's mother, Doreen, age 62, was widowed four years ago when her husband died at age 60. Her living expenses total $1,100 per month, and her only income is $600 a month from Social Security and $00 a month from Sheldon and Amy. Doreen has a partnership long-term care policy that she purchased 10 vears ago. The pollcy had a maximum coverage amount of $100,000, which grew to $12$,000 with its inflation protection rider. The policy includes provisions for both nursing home care and home health care. The Coopers assume they will need to assume responsibility for the premium payments in the near future Sheldon has been concomed about several aspects of his mother's bealth and has asked 2 how her developing health issues relate to making a claim on ber long-term care insurance policy. He mentioned his mother is developing macular degeneration in her eyes, and he wants to know what percentage of her sight she must lose as a qualifying medical condition under long-term care insurance. Amy's mother, Roberta, age 70, is a lifelong resident and citizen of Brazil and is fully supported by Amy and Sheldon. The Coopers contribute $300 each month to support Roberta. Economic Information The Coopers expect inflation to average 2% annually, both currently and for the long term. They also expect Amy's salary to increase 5% annually, both currently and long term. The net income from Big Joey's for the last three years was $76,000,$59,600, and $57,500, respectively. Sheldon expects net income from Big Joey's to increase at 3.5% annually, both currently and over the long term. Current mortgage rates are 3.5% for 15 years and 4.125% for 30 years. Closing costs would be 3% of the amount financed and would be paid at closing from separate funds inot rolled into the mortgage). Current Martgoge Rotes Insurance Information Life insurance Amy also has an accidental death and dismemberment policy through her employer. She is covered for $100,000 under this policy. She pays a premium of $68 per year for this coverage. Heolth insurance All family members are covered under a group health plan maintained by Amy's employer. The plan is a major medical policy with ih annuat family deductible of $500. After the deductible is met, the plan pays 80% of the next $10,000 of covered medical expenses and 100% thereafter for the balance of the calendar year. Amy's school district also offers a flexible spending account (FSA) for health and child care expenses, but Amy has never contributed. She has asked you to explain how an FSA works and what the benefit of participation would be to their finances. She has asked you to calculate any tax savings they would derive. Dental insurance Sheldon, Amy, and the children have dental insurance offered through Amys employer. The premium is $416 annually. Disabilly insurance Sheldon has a personal disability policy with an own-occupation definition that provides a benefit of $2,000 per month disability income and has a 180 -day elimination period. The policy was purchased from a local insurance agency. This policy covers both accidents and sickness and has a benefit period of five years. Sheidon's aonual premium is $600. Amy has an own-occupation policy that provides a benefit of 65% of gross pay and has a 90 -day elimination period. The policy covers both accidents and sickness until age 65 . The annual premium is $1,000. The premium is paid entirely by her employer as an emplovee benefit. She has the option to receive a higher benefit by paying the premium for the increase. Homeowners insurance The Coopers have an HO3 policy with a $250 deductible, a dwelling coverage of $97,000, an 80% coinsurance requirement, and a current yearly premium of $1,239. There is $100,000 liability coverage per occurrence. Automobife insurance The Coopers own one vehicle and lease another. They carry the same automobile coverage on both. Investment Data NOrE: In the investment holdings tables in this section, the X with a line above represents the average return for the holding. The Coopers indicate their tolerance for investment risk is a 7 on a scale of 1 to 10 ( 1 being the most risk averse), They expect to be more conservative as they get closer to retirement. For all of their financial planning goals, they are comfortable assuming a projected annual return of 7% on their investments and retirement assets. The risk-free rate is 2.5%, and the market rate of return (benchmark return) is 12.41%. Stocks Mutual Funds Amy's Section 403(b) Plan (TSA) Amy has asked you to comment on her TSA plan performance. Specifically, she wants to know how well the fund is performing relative to what is expected using CAPM. Also, she is concerned that the fund may not be performing well enough to justify the portifolio's risk, as measured by beta. Therefore, she wants you to analyze the portfolio's risk versus the owerall market: She also has asked what maximum contribution she can make to the plan for 2023 . Sheidon's IRA Sheldon wants to make a $4,000 contribution to his IRA. He wants to purchase Stock G using the entire contribution. The stock has an expected rate of return of 8% over the next five years. He would like to know the expected rate of refurn of the new portfolio, including this stock (Stock G), if his existing holdings continue to perform at a rate equal to their average rate of return. Also, will this new portfolio return exceed the rate of return he wants to assume for planning purposes, as stated in the Investment Data section of the case? Income Tax Information Their marginal income tax rate is currently 22% for federal income taxes. There is no state income tax in the Coopers' state of residence. Sheldon and Amy file their income tax return as MF1, but they have never hired a professional to complete their income tax returns. They admit they are not the best record keepers and typically procrastinate, and then have to rush to file on time. Retirement Information The Coopers plan to retire in 25 years, when they are 62 years old. They would like to have a retirement income equal to 80% of their preretirement income, in today's dollars, adjusted for expected compensation increases as stated to age 62 . For planning purposes, the Coopers wish to assume they each will receive $29000 per year at FRA from Social Security. They assume they can earn 7% per year on invested retirement assets. They expect to be in retirement for 25 vears. Amy has a Section 403(b) plan through Anytown Private School District. She has been contributing 5% of her salary since she began working there 15 vears ago. The school district matches 25% of Amy's contributions, up to an employer maximum contribution of 2% of salary. Her estate is currently designated as the beneliciary. Amy also is a participant in a state teacher retirement plan, but she does not wish to consider the plan in their retirement estimates. Sheldon has an IRA through his bank. He opened the account 10 years ago and has been contributing $3,000 each year since 2013 . Before 2013 , he contributed $2,000 annually. He always contributes on fanuary 1 of the vear in question. His estate is the beneficiary of the IRA Sheldon would like to start maximizing his retirement savings. He has heard he may be able to contribute more for retirement if Big Joevs establishes an employer-sponsored retirement plan. Based on research he has done thus far, Sheldon has narrowed his choices for a retirement plan for Bg loev's to a SIMPLF IRA of a SEP IRA. Gifts, Estates, Trusts, and Will information The Coopers have not done much estate planning and currenthy have simple wills leaving all probate assets to each other. STATEMENT OF ANNUAL CASH FLOWS Sheldoe and Amy Cooper Clothing Rental property expenses (Schedule E) Total erdinany living expenses Tetal outflows Net cash flew surptus \$ 150.171 56.611 STATEMENT OF FINANCIAL POSTION Sheldon and Amy Cooper Jasuary 1,2023 Assets Cashicash equivalent Checking account Savings account \begin{tabular}{lrr} J & $ & 5,200 \\ J & & 12,300 \\ & $ & 17,500 \end{tabular} Tetal cash/cash cyuivalent Insested assets Certificate of deposit Savines bends Munal funds Intividual stocks Amy's inherited IRA Amy's Section 403(b) Sheldon's IRA Big Jocys Rental property Lifo insurance cach value Total isvested assets Personal ase assets Primary residence (ineluding land) Jewelry. Jeep Ginand Cherokoo Bascball card collection Total personal use assets \begin{tabular}{lrr} JT & 5,000 \\ JT & 4,000 \\ J & 13,600 \\ J & 18,800 \\ Amy & 100,000 \\ Amy & 31,331 \\ Sheldon & 27,942 \\ JT & 138,000 \\ Amy & 84,000 \\ Sheldon & 21,250 \\ & 5 & 43,923 \end{tabular} Total assets JT Amy I Sheldon 1.iahilities Crectit cand Aute loan Hore mortgate \begin{tabular}{rr} 5 & 125,000 \\ 8,000 \\ 24,000 \\ 2,400 \\ 5 & 159,400 \\ \hline \end{tabular} Total liahilities 5620,823 Net worth 58,200 11,000 98,836 Total liabitisies and eet warth 5118.046 s $02,787 5620,823 11 The couple wants to become more knowledgeable about financial statements and reports and have asked you to explain how the following transactions in the upcoming vear would impact their net worth: - They pay off $5,000 of their credit card debt using the money from their savings account. - Their mutual fund portfolio increases by 7% - Sheldon buys $1,000 of sports memorabilia for $800 using funds from their checking account. - Amy buys a used sports car for $25,000 with no down payment and financing at 3.9x for 60 months on the balance. Notes Fegarding Assets and Liabilities Big Joey's Big Joey's is located one block off the local college campus and has been in business for 32 years. Joey had a tax basis in the bar of $10,000. The fair market value at the time of Joey's death was listed at $40,000. Sheldon believes the value was an estimate by Joey but is not sure. Two years ago, Sheldon executed a A Nocument making Big Joey's joint property with Amy. Sheldon has done some refurbishing of the bar at a cost of $30,000. The building and property are currently valued at $78,000. Sheldon states the bar (business and property) could be sold at a fair market value of $138,000 and thinks the value wall increase at 3.5% per year. Big loey's is staffed primarily by students working part time a few hours a week, with none working more than 500 to 600 hours per year. Some students work a couple of years before graduating. Sheidon also employs a full-time grill cook and a fulli time bar manager, each earning $35,000 per vear, The fare is simple at Big Joey's, but the students and locals love the charcoal grilled burgers, hot wings, and drink specials. Many locals have encouraged Sheldon to expand operating hours to include lunch service. In his later years, Joey only wanted to work evenings, and thus far, sheldon has not changed the operating hours. When Sheldon inherited Big Joeys, he also inherited a collection of sports memorabilia from the football program, mostly dealing with Joey's time on the team. Ricsidence The Coopers purchased their home six years ago and financed a mortgage of $104,000 over 30 years at 9.25%. The house is a two-story with three bedrooms and brick exterior. It has a pool and a large, open backyard. Rental Property The rental property, which is valued at $84,000, consists of a small retail buliding across town. It is in a poor location and is currently a break-even proposition, as income equals expenses. Amy acquired the property from Aunt Belle three years ago as a gift. Belle had a basis in the property of $20,000 ( $5,000 for the land and $15,000 for the building) and paid a gift tax of $24,000 on the transfer. The annual exclusion was not available for this gift. At the time of the gift, the property had a fair market value of $60,000. Belle died last December, and at the time of her death, the property was valued at $84,000. Amy has taken depreciation on the property in the amount of $4,308. Before Belle's death, Amy would never dispose of the rental property for fear of offending Belle. However, now the Coopers are interested in selling the property and investing the proceeds for retirement or for college funding. There is a tenant in the same strip mall who would buy the property for $84,000. Sheldon has also been approached by Ted, the owner of the building directly next to Eig Joey's, offering to exchange his building for the Coopers' rental property. Ted's building has a current fair market value of $100,000. Openjeg up the common interior wall of Ted's adjoining building would allow Sheldon to expand Big Jorys and double the seating capacity. Remodeling the space to convert to restaurant space would require an investment of approximately 575,000 . in the exchange, the Coopers would assume a small mortgage of $16,000. Sheldon is interested in acquiring Ted's property. Additional Development Sheldon called you and said Ted was going to request information from you on the income and expenses for the rental property. Due to several wacated spaces, the current information is not as favorable as it wis two years ago. Sheldon asked you to "help him out" by informing Ted that the firm that does the accounting is running behind, and only the information from 2020 is available to share (although 2021 is, in fact, avilable), This would be favorable to the coopers, but vou wonder if comphing with his request would violate any CFP Bourd prinoples or rules. Please reference specific information contained in the Standards of Professional Conduct in wour resionse 13
