Comprehensive Financial Planning Case Today is January 1, 2022. Bart and Joy Payn have come to you, a financial planner, for help in developing a plan to accomplish their financial goals. From your initial meeting together, you have gathered the following information. PERSONAL BACKGROUND AND INFORMATION Bart Payn (age 30) Bart is an assistant in the marketing department for Gas & Electric, Inc. His annual salary is $26,000. Joy Payn (age 30) Joy is a legal research assistant with the law firm of Sabrio, Johnson & Williams, LLC. Her annual salary is $20,000. The Children Bart and Joy have no children from this marriage. Bart has two children, Shawn (age 4) and Ronald (age 3), from a former marriage. Shawn and Ronald live with their mother, Kimberly. T&P_Txtbk.indb 893 2/20/2014 12:39:41 PM 1 The Payns Bart and Joy have been married for two years. Bart must pay $325 per month in child support until both Shawn and Ronald turn 18. The divorce decree also requires Bart to create an irrevocable life insurance trust for the benefit of the children and contribute $175 per month to the trustee for payment of life insurance premiums, Kimberlys father. There are no withdrawal powers on the part of the beneficiaries. The trust is to be used for the education and/or maintenance of the children in the event of Bart's death. The trustee has the power to invade any trust principal for the beneficiaries at the earlier of Bart's death or when Ronald turns 18. ECONOMIC INFORMATION Inflation is expected to be 4% annually. Their salaries should increase by 5% for the next 5 to 10 years. There is no state income tax. The economy is growing slowly; stocks are expected to grow at 9.5%. Bank Lending Rates The 15-year mortgage rate is 7.5%. The 30-year mortgage rate is 8%. The rate for a secured personal loan is 10%. INSURANCE INFORMATION Life Insurance Policy A Policy B Policy C Insured Mark Mark Joy Face amount $300,000 $78,0001 $20,000 Type Whole life Group term Group term Cash value $2,000 $0 $0 Annual premium $2,100 $178 $50 Who pays premium Trustee Employer Employer Beneficiary Trustee2 Kimberly Bart Policy owner Trust Bart Joy Settlement options clause selected None None None 1This was increased from $50,000 to $78,000 January 1, 2022. 2Shawn and Ronald are beneficiaries of the trust. T&P_Txtbk.indb 894 2/20/2014 12:39:41 PM 2 Health Insurance Bart and Joy are covered under Bart's employer plan, which is an indemnity plan with a $200 deductible per person per year and an 80/20 major medical coinsurance clause with a family annual stop-loss limit of $10,000. Long-Term Disability Insurance Bart is covered by an own occupation policy with premiums paid by his employer. The benefits equal 60% of his gross pay after an elimination period of 180 days. The policy covers both sickness and accidents and is guaranteed renewable. Joy is not covered by disability insurance. Homeowners Insurance The Payns have an HO-3 policy without endorsements. Content coverage is $25,000; liability coverage is $100,000. Automobile Insurance Both car and truck are covered. They do not have any additional insurance on Bart's motorcycle. Type Personal auto policy Bodily injury $25,000/$50,000 Property damage $10,000 Medical payments $5,000 per person Physical damage Actual cash value Uninsured motorist $25,000/$50,000 Comprehensive deductible $250 Collision deductible $500 Premium (annual) $3,300 INVESTMENT INFORMATION The Payns think they need six months cash flow net of all taxes, savings, vacation, and discretionary cash flow in an emergency fund. They are willing to include in the emergency fund the savings account and Bart's Section 401(k) plan balance because it has borrowing provisions. T&P_Txtbk.indb 895 2/20/2014 12:39:41 PM 3 The Amazing.com stock was a gift to Bart from his uncle Bill. At the date of the gift (July 1, 2017), the fair market value of the stock was $3,500. Bills tax basis was $2,500, and Bill paid gift tax of $1,400 on the gift. Bill had already used up both his lifetime applicable exclusion amount and that year's annual exclusion to Bart. The K&B stock was a gift to Joy of 100 shares from her uncle Mike. At the date of the gift (December 25, 2017), the fair market value was $8,000 and Mike had paid $10,000 for the stock in 2000 (his tax basis). The Growth Mutual Fund (currently valued at $13,900) was acquired by Bart over the years 2014 through 2019 with deposits of $1,000, $1,000, $2,000, $2,000, $2,500, and $3,000. The earnings were all reinvested, and Bart received 1099 forms for the income and capital gains during the years of earnings ($0 in 2014, $200 in 2015, $400 in 2016, $400 in 2017, $650 in 2018, and $750 in 2019). INCOME TAX INFORMATION The Payns federal income tax filing status is married filing jointly. Both the children (Shawn and Ronald) are claimed as dependents on the Payns tax return as part of the divorce agreement. The Payns live in a state that does not have state income tax. Section 79 Cost from Uniform Premium Table: Age 29 and under, $.06 per month/per $1,000 RETIREMENT INFORMATION Bart currently contributes 3% of his salary to his Section 401(k) plan. The employer matches each $1 contributed with $.50 up to a total employer contribution of 3% of salary. GIFTS, ESTATES, TRUSTS, AND WILL INFORMATION Bart has a will leaving all of his probate estate to his children. Joy does not have a will. The Payns live in a common law state that has adopted the Uniform Probate Code. T&P_Txtbk.indb 896 2/20/2014 12:39:41 PM 4 PERSONAL STATEMENT OF CASH FLOWS Bart and Joy Payn Personal Statement of Cash Flows (Expected to be Similar in 2020) January 1, 2021December 31, 2021 $26,000 20,000 1,090 $47,090 $ 1,200 1,090 780 $ 3,070 $ 3,900 2,100 6,600 480 720 360 3,699 3,300 2,400 3,600 1,800 1,302 $30,261 $ 7,835 3,600 1,000 1,500 $13,935 $47,266 $ (176) CASH INFLOWS Salaries* Bart Joy Investment income** Total inflows CASH OUTFLOWS Savings Reinvestment of investment income Section 401(k) plan contribution Total savings FIXED OUTFLOWS Child support Life insurance payment (to trustee) Rent (equivalent to mortgage) Homeowners (Renters) Insurance Utilities Telephone Auto down payment 12/31/21*** Auto insurance Gas, oil, maintenance Student loans Credit card debt Furniture payments Total fixed outflows VARIABLE OUTFLOWS TaxesFICA and withholding both spouses Food Clothing Entertainment/vacation Total variable outflows Total outflows Net cash flows (deficit) TOTAL OUTFLOWS $47,090 *Bart's W-2 will reflect the Section 79 costs of $28,000 in excess group term life insurance, but this is not a cash inflow. **$340 from dividends and $750 from other investment sources. ***P&I next year will total $3,600. T&P_Txtbk.indb 897 2/20/2014 12:39:41 PM 5 STATEMENT OF FINANCIAL POSITION Bart and Joy Payn Statement of Financial Position As of January 1, 2022 ASSETS1 LIABILITIES2 & NET WORTH $ 9,000 3,240 2,508 1,115 Current liabilities $ 500 Credit card balance VISA 1,000 Student loanBart3 $ 1,500 Auto loanJoy Furniture loan $ 5,000 Total current liabilities $15,863 7,200 13,900 Long-term liabilities $41,821 12,288 418 1,500 Student loanBart $27,600 Auto loanJoy Furniture loan $18,494 Total long-term liabilities $54,527 4,000 1,000 Total liabilities $70,390 17,750 Net worth (46) $41,244 Cash and equivalents Cash Savings account Total cash and equivalents Invested assets Amazing.com stock (100 shares)4 K&B stock (100 shares) Growth Mutual Fund Section 401(k) plan Total invested assets Use assets AutoJoy TruckBart MotorcycleBart Personal property & furniture Total use assets Total assets $70,344 Total liabilities & net worth $70,344 Notes to financial statements: 1. Assets are stated at fair market value. 2. Liabilities are stated at principal only as of January 1, 2022, before January payments. 3. Bart's parents took out the student loans, but he is repaying his parents at a rate of $300 per month. The P & I are from his parents' records. 4. Amazing.coms current dividend is $3.40. INFORMATION REGARDING ASSETS AND LIABILITIES Home Furnishings The furniture was purchased with 20% down and 18% interest over 36 months. The monthly payment is $108.46. T&P_Txtbk.indb 898 2/20/2014 12:39:41 PM 6 Automobile The automobile was purchased December 31, 2021, for $18,494 with 20% down and 80% financed over 60 months with payments of $300 per month. Student Loan The student loans were made in Bart's parents' names and consist of a combination of home equity and PLUS loans. The interest rates vary and Bart pays his parents directly each month.

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