Could I get questions 11-16 answered? I have attached all the information I have.
CASE STUDIES Jason and Andrea Dalton Personal Data Husband: Wife: Jason Dalton, age 51, Senior Executive for XYZ, Inc. Children: Andrea Dalton, age 48, Homemaker Ashley Dalton, age 14 (starting 9th grade) Jason's parents: Carl Dalton, age 11 (starting 6th grade) Andrea's parents: Father deceased, Mother, age 77, in nursing home Mother, age 68, and Father, age 69, in good health Financial Data Primary Residence (JTWROS) ............... .......... $850,000 Mortgage on Primary Residence.. .... ($325,000) Vacation Home (JTWROS).... ....... $350,000 Mortgage on Vacation Home ..... ..... ($125,000) Cash Accounts (JTWROS)......... ...... $80,000 Jason's 401(k) ..........." . $400,000 Jason's IRA........... . $125,000 Andrea's IRA ....................". .... $17,000 Investment Brokerage Account (JTWROS) .......... .....$375,000 XYZ, Inc. Stock (Jason) ....". .... $1,300,000 Single Premium Fixed Deferred Annuity (Jason) ... $72,000 Cash Value of Life Insurance .... $105,000 Jason's automobile............... ..... $25,000 Andrea's automobile ............ .. $13,000 Ashley's UTMA account (Jason custodian) .. .. $25,000 Carl's UTMA account (Jason custodian) ....... ........ $17,000 Income/Expense Data Jason's Salary ............ ........... $350,000 XYZ Dividends.......... ....... $52,000 Other Interest & Investment Income ............. ...... $12,000 Monthly expenses (excluding mortgage and taxes).. ...... $10,000 511CASE STUDIES Goals 1. Resolve divorce proceedings in an equitable manner for each of them Provide for college education for Ashley and Carl, assuming $12,500/ year (in today's dollars) for four years Economic Environment Current inflation, as measured by the CPI, is at 2% (however, college costs are inflating at 6%). 90-day T-bill rates are currently 16. Long-term government bonds are yielding 5.5%. Economic growth is expected to be 45% in the coming year, and unemployment is at 4.5%, Interest rates are expected to rise in the near future. Questions 1. If the Daltons get divorced tomorrow, and in two years, they transfer 50% of Jason's XYZ Stock to Andrea to equalize the post-divorce property, the gift tax consequences will be: a) b) Gain must be recognized on the transfer ( ) The basis in the stock for Andrea will its fair market value at the time of divorce The basis in the stock for Andrea will its fair market value at the time of the transfer d) Gain is not recognized on the transfer 2. The divorce decree states that Jason will be required to pay $5,000/month of alimony to Andrea for 10 years. The tax consequences of the alimony payments are: a) b) Not taxable or deductible by either party Taxable income to Andrea, not deductible for Jason because alimony is a personal expense () Taxable income to Andrea, and deductible for Jason d) Not taxable income to Andrea, but deductible for Jason 3. The divorce decree states that Jason will be required to pay $2,500/month to Andrea for child support until Ashley turns 18 and $1,500/month thereafter until Carl turns 18. The tax consequences of the child support payments are: a) Not taxable or deductible by either party b) Taxable income to Andrea, not deductible for Jason because child support is a personal expense c) Taxable income to Andrea, and deductible for Jason d) Not taxable income to Andrea, but deductible for Jason 4. Andrea's divorce attorney stresses the importance of obtaining a Qualified Domestic Relations Order (QDRO) as a part of the divorce proceeds. This is necessary in order to provide for Andrea's share of: a) All of Jason's assets b) Jason's 401(k) account C) Jason's IRA account d) Both B and C are true 51ONINNVI TV CASE STUDIES The Dalions have decided to send Ashley to a private high school, and need to use $20,000 of their assets In may the current tuition bill. The tax consequence of taking a $20,000 withdrawal from Jason's annuity for this education expense is: a) Recognition of $20,000 of ordinary income, but there is no early withdrawal penalty because this is a quali- fied education expense. b) Recognition of $20,000 of ordinary income, and a 10% early withdrawal penalty Recognition of $17,000 of ordinary income, and a 10% early withdrawal penalty of) No recognition of income at all, because this is a qualified education expense 12. If Jason decides to liquidate Ashley's UTMA account now to pay for her private high school expenses, the tax consequences of this sale will be: b) Entirely reportable on Jason's tax return, since he is the custodian Nontaxable because Ashley is age 14 c) Generally taxable at Jason's marginal tax rate because Ashley is age 14 d) Nontaxable because the account is used to pay for private high school expenses 13. The Daltons recently remembered that Ashley's grandmother purchased savings bonds in Ashley's name when she was born, for use for her future college expenses. The tax consequences of the liquidation of these bonds for Ashley's future school expenses will be that they are: a) Excluded from income, no matter what, under the bond interest exclusion rules. b) Included in income, because Jason and Andrea's Adjusted Gross Income (AGI ) is so high that they do not qualify for the bond interest exclusion rules () Included in income, because the bonds are titled in Ashley's name, making them ineligible for the bond interest exclusion rules d) Excluded from income, as long as Andrea's income in that year remains below the AGI limits 14. If you were to draft a Personal Financial Statement for the Dalton family, the total value of Jason and Andrea's assets would be: a) $3,712,000 b) $3,754,000 $3,304,000 d) $3,262,000 15. Jason's maximum 401(k) contribution for 2015 is: a) $17,500 b) $18,000 () $23,000 d) $24,000 16. The Daltons have decided to replace Andrea's automobile with a new vehicle that will cost $30,000 after the trade-in of Andrea's current car. The dealer offers them a choice of 0% financing costs for three years with a balloon payment at the end of three years, or $2,000 off if they make a lump-sum payment now. Any available cash or savings that the Daltons have from these choices will be invested in a 3-year CD at the bank at 1.25%. The Daltons should choose to: a) Make a lump-sum payment now at the discounted price b) Select the 3-year 0% financing deal 515Other Pertinent Information . Jason and Andrea have filed for divorce after 16 years of marriage Jason and Andrea do not live in a community property state Jason's cost basis in XYZ stock is $150,000, which he has accumulated over many years The Daltons are in a combined federal & state tax bracket of 41% The Daltons state that they are very conservative, and their investment account is primarily (80%) fixed income investments . Jason's 401(k) account is also allocated to approximately 80% in fixed-income investments; Jason maximizes his 401(k) contribution every year Jason has a universal life policy purchased in 1989 with a death benefit of $500,000; Andrea is the beneficiary Jason has group term insurance through XYZ with a death benefit of $1,050,000 (3x salary) that is entirely paid for by XYZ; Andrea is the beneficiary . Andrea has $250,000 of spousal group term life insurance through XYZ; Jason is the beneficiary . Jason and Andrea are beneficiaries of each other's retirement accounts . Andrea is the beneficiary of Jason's annuity (where Jason is the owner and annuitant), which has a cost basis of $55,000 Jason has disability coverage paid for by his employer as a nontaxable fringe benefit, providing 60% of monthly income up to $10,000/month; benefits are payable until 65 after a 90-day elimination period; disability is defined as the inability to perform the substantial duties of your regular occupation . Jason receives adequate medical insurance coverage through XYZ for the family; the Daltons have adequate homeowner's and automobile coverage The primary residence mortgage is a 30-year fixed-rate loan, and was originated 6 years ago at 6.75% The vacation home mortgage is a 5/1 ARM loan (payable over 30 years), and was originated 2 years ago at 5.25% . Contributions of $500/month are being made to each of Ashley's and Carl's UTMA accounts . In the Daltons' state of residence, minors receive full access to UTMA funds at age 18 . Jason's mother is utilizing her Social Security and survivorship pension income to cover nursing home costs, and will have very little other assets remaining . Andrea's parents have nearly $1,000,000 in retirement assets that they are spending minimally, which will ultimately be divided between Andrea and her sister
