Could I get questions 5-10 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 5. If Andrea's parents were to be killed in a car accident tomorrow, and the divorce is still pending, how would Andrea's inheritance be treated for purposes of the divorce? ) Andrea will have to split the assets evenly with Jason, since they were inherited before the divorce was completed b) Andrea will not have to split the assets with Jason as long as she retains them in an account titled solely in her name c) Andrea would never have to split the assets with Jason, because she inherited them in the first place Andrea will have to split the assets evenly with Jason, since she did not sign a pre-nuptial agreement to protect them 6. How does the Dalton portfolio compare to their specified risk tolerance? The risk of the Dalton portfolio appears to be: Consistent with their risk tolerance c) b) Lower than their risk tolerance Much higher than their risk tolerance d) Unable to be determined with the information provided 7. If the cost of college for Ashley is $15,000/ year today, how much will a year of college cost her when she starts in 4 years if school expenses are inflating at 6% (to the nearest dollar)? a) $18,600 b) $18,937 c) $16,883 d) $17,842 8. If the cost of college for Carl is $15,000/year today, how much will a year of college cost him when he starts in seven years if school expenses inflate at 6% for the next four years, and then at 5% for the remaining three years (to the nearest dollar)? a) $22,554 b) $21,922 C) $23,018 d) $20,878 9. Carl's total taxable income for 2015 is generated solely from his UTMA account, which created $1,500 of interest. Carl's total federal income tax due for 2015 was approximately: a) $0 b) $55 $150 d) $495 10. Jason decides to invest Ashley's UTMA account assets in a 529 college savings plan. In this situation, when Ashley turns 18: a) She will take over full control of the account, because she has reached the age of majority for the UTMA account b) Jason will retain control over the account, because he was established as the owner of the 529 plan account c) She will be required to immediately recognize all unrealized gains in the account d) Both a and c are true 514Other 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
