Could I get questions 17-20 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 51FINANCIAL PLANNING 17. The Daltons plan to purchase an automobile for Ashley as her future graduation present from high school. The car they would like to purchase costs $25,000 today and they expect its cost will increase at 2% per year. In addition, they can purchase a four-year bond at 4%. How much do the Daltons need to set aside in the CD now to have the appropriate dollar amount available to purchase the car in four years (to the nearest dollar)? $20,964 b) $22,212 $23,555 d) $23,132 18. If Jason were to become disabled, his disability insurable benefits would be: a) Tax-free b) Taxable as ordinary income c) Partially taxable and partially tax-free d) Unable to be determined from the information provided 19. Assume for this question that the Daltons do not intend to get divorced. The Daltons have stated that they intend to keep their vacation home until retirement, and to make it their permanent residence once they retire. The Daltons have also stated that they are comfortable using a mortgage as 'leverage" to help grow their overall net worth, but would like to be debt-free when they retire in approximately 10 years, even if that means paying off their outstanding balance in a lump sum at that time. In light of this, the Daltons should: a) Refinance their mortgage to a 30-year fixed-rate loan b) Maintain their current mortgage as is c) Refinance their mortgage to a 10/1 ARM d) Pay off their mortgage immediately 20. The Daltons come to visit you for a preliminary free consultation to decide if they would like to hire you as a financial planner. At this meeting, you mention how risky it is to hold such a substantial portion of your net worth in a single stock, although you acknowledged that you did not have any knowledge about this company in particular. Two days after the meeting, Jason contacts you to inform you that he has liquidated all of his company stock, "as you advised." Under the CFPD Code of Ethics, you should: a) Not be concerned, because diversifying is always good advice b) Not be concerned, because it was only a preliminary consultation and you did not have a signed planning agreement c) Be very concerned, because the client may no longer need your services, since he has already received quality investment advice d) Be very concerned, because the client acted on advice you gave when you did not have all of the available informationOther 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
