FIN8200 Case Study Assignment CASE: LESLIE AND DUNCAN PLANT It is January 10, 2022, Leslie and Duncan Plant have just left your office after their first interview with you. In preparation for the interview, you had sent them a list of the various documents that they should bring with them in order to make the interview as efficient as possible and they had done so. As a result, you were able to gather almost all the information you need to prepare a comprehensive financial plan for them. During the discussion, you found out that your services had been recommended by a friend of the Plants, who is one of your top clients. You realize that you will need to do a super job in order to keep an important client impressed with your financial planning services. The Plants understand that you are a fully commission-based financial planner at Waterloo Planning Solutions Inc., able to sell securities and insurance products. During the interview, Duncan and Leslie, who are in their late 30's talked at length about their one and only daughter Ashley, who turned 8 years old last November. As an only child, it is hard for Duncan and Leslie not to spoil Ashley. They wish they could spend more time with her, however both parents spend a great deal of time at work. Fortunately, the private school that Ashley attends runs a child care program after normal school hours until 6 pm. Leslie and Duncan take turns picking up Ashley from school. In the morning, Duncan generally drops her off at 7:15 a.m. so that she can attend her morning swim class. Ashley has really taken to the sport of swimming in the last couple of years and is expecting to participate in the provincial championships next year. Ashley's coach mentioned to Duncan at a recent swim meet that he could expect to spend about $4 000 a year in swim fees for Ashley to continue to swim competitively. Duncan had not kept track of the amount he had spent to date, but he was not surprised at the amount once he did a rough calculation of the cheques he had written over the past year. Once Duncan started thinking about the swim expenses, he started thinking about the other cheques he had written relating to Ashley. There were the twice-a-year cheques he writes to the private school for $5,500 each (but Leslie receives the tax deduction - Duncan asked why). Then there was the monthly withdrawal from the joint chequing account that was put into a fixed income mutual fund for funding Ashley's university education. A friend had told him he should buy some mutual funds in an "in-trust" account and put it under Ashley's Social Insurance Number (SIN). By doing so, the income would be Ashley's. Duncan set up the account a little over two years ago and has (and plans to continue) contributed $500 a month to the account. As of the last statement from the mutual fund company, the mutual funds were worth about $13,650. When you asked him why he chose a bank fixed income mutual fund he told you that the account at the bank was easy to set up and that he liked bonds because they do not go up and down in price like stocks. The return on the funds has been 3.5% according to the most recent statements that Duncan has looked at and he does not

expect the rate to change very much in the future. Duncan expects Ashley to go to a prestigious US university and wants to be able to have $25 000 US (or $32 000 CDN) in today's dollars to give to Ashley for each of the expected four years she will attend university. Although inflation has been running in the 1.5 % to 2.5% range, he has heard that education costs have been escalating at about 4% and would like you to use that rate in calculating whether he is saving enough. The main reason the Plants came for the visit was to ask for your opinion on what they should do with a $25,000 inheritance that Leslie had just received from a great aunt's estate. The money was unexpected since Leslie did not know that she was included in her aunt's will. They have asked you what alternatives are available for investment, and the pro and cons of each alternative. Leslie mentioned that she had heard that for Ontario's Family Law purposes that it is best to keep the funds separate because they would not be included in the net family property value calculation. She therefore asked you to consider only options where the funds would not be co-mingled with funds from Duncan. During the one and a half hour meeting, you found out that Duncan is age 39 and is a national sales manager at a specialty electronics company. His current remuneration is an annual salary of $91,000 plus an average benefits package. The package (completely funded by the employer except the pension) includes group health coverage, group life insurance equal to two times his salary, dental coverage with a yearly maximum of $1 000, 100% short- term (3-months) and 50% long-term disability insurance coverage of his salary and a pension plan. Neither he nor Leslie have any other life or disability insurance. Duncan said he would want his family to have the same lifestyle if either he or Leslie died. He also heard a friend talk about critical illness protection and wanted to know if he needs such protection. Both he and his employer contribute to the pension plan. Duncan said he did not understand exactly how his pension plan worked especially since the pension plan documentation would not state what his final pension would be even though he knew exactly how much he was contributing each year. In fact, he said he was not overly concerned since he expected not to work with the same company until he retires at age 62. He said given what was happening in the industry, he expected to work with two more companies before then. He provided you with a copy of his most recent pension statement. It showed that he and his employer each contributed $1 000 to the plan annually into a balanced mutual fund selected by Duncan. The fund has had an average rate of return (before fees and inflation), over the past five years of 5.5%. The current value of the vested benefits is $11,500. Leslie is a Vice President of Marketing at a medium-size venture capital corporation. She thinks that she has done well considering she is only 38. She hopes to retire at the same time as Duncan. Her base salary is $84,000 for the year. She also receives an annual bonus that varies each year because of the market fluctuations. The minimum bonus amount she expects in the future is $14 000 each year and that is the amount you should incorporate in any analysis. She is registered as a spouse on Duncan's benefit package at his work as she has no benefits at work other than a group RRSP. She contributes $500 a month to the group RRSP (invested in a short-term bond fund) matched by $250 from her employer. She only started contributing to the group RRSP last month, so it is currently worth $750. She had hesitated

starting contributions to the plan because she does not understand the difference between her group RRSP, Duncan's pension plan and the type of plan her sister has through her employer. Her sister Brittany has a registered pension plan to which only her employer contributes. Brittany will receive 2% per year she works with her employer times the average of her final three year's salary. You make a mental note to include a discussion on the various options in the retirement planning section of the financial plan. From the Plants' tax returns, you noted that they each paid the required Canada Pension Plan premiums and Employment Insurance premiums in 2021. Duncan paid approximately $27 000 in income taxes and Leslie paid $42 000 in taxes. The Plants last visited a lawyer to have their wills prepared shortly after Ashley was born. Lesley thought that it might be time to review the wills again, and has asked you to provide a list of any special clauses that should be included in their wills. No powers of attorney are in place and the Plants do not seem to understand the importance of these documents. You think that it would be a good idea to explain the difference between a will and a power of attorney, and why it is important to have both documents in place. While talking about estate planning, Leslie indicated that they are very active in their church and she would like to donate $100 000 to the church at her death. She asked you for recommendations on how this can be accomplished. This would be in addition to the $3 000 a year she donates for various causes sponsored by the church. Duncan and Leslie assume that their estates at their expected ages of death (they said their life expectancy would be Duncan 88; Leslie 92) will be sufficiently large to handle the bequest to the church and leave the cottage for Ashley. They are not concerned about leaving any specific amount (except the cottage itself) to Ashley on the assumption that she will be in her 50's and should be self- sufficient by then. The donation to the church is Leslie's largest contribution. On her last year's tax return, you note she also contributed a total of $200 to a number of other charities. Duncan included $300 in donations to the United Way on his last tax return. The Plants have not really analyzed their investments before. In the past, they have invested mainly by word of mouth from friends. As a result, they have a mix of various investments. Duncan for instance bought $5 000 worth of gold mining stock two years ago from a broker who called him at home one night. Duncan was not sure of its worth today, but he believes it might be worth about $1 000. Leslie has participated for the past couple of years in the Canada Savings Bonds savings program at work and now has $8 000 in bonds (plus accrued interest of $350). Besides the inheritance money in Leslie's savings account, there is $12 000 in the joint bank account. Their joint investment account at the bank's discount brokerage has $87 000 in it comprised of $23 000 in money market mutual funds, $5 500 cash from non-invested distributions, $10 000 of a Latin American mutual fund (original cost $17 500), $40 000 CDN in a US index mutual fund (original cost $28 000 CDN) and $8 500 of a labour sponsored venture capital corporation (original cost $8 500). Leslie is wondering if they should sell

these investments to pay down some of the mortgage, but is not sure of the tax consequences involved in this strategy. The last time Duncan & Leslie visited their bank branch, they were convinced to arrange for a $10 000 unsecured line of credit with an interest rate of prime + 4%. Prime is currently 2.5%. They were told that it was important for all homeowners to have a line of credit in case of emergencies. Duncan has found it convenient to use the line of credit to purchase items when the credit card limit is reached. At the interview, Duncan stated that his credit card limit of $7 000 was fully utilized and he had used $2 500 of the line of credit. Leslie simply shook her head at that point in time during the interview and commented that they usually payoff only 10% of the outstanding balance on the credit cards and all of the interest accrued on the line of credit each month. Besides the house, the Plants own a recreation property with a cottage on it. Duncan inherited the cottage from his aunt who passed away three years ago. Duncan estimates that the cottage is currently worth about $335 000 which is about what it was worth when he inherited it. He believes that due to the demand that aging baby boomers will put on recreation properties, the cottage will escalate in value at a rate of at least 12% per year. Both parents want Ashley to inherit the cottage. Duncan provided you with the following estimated costs of maintaining the cottage: Cottage Maintenance Property Taxes 173/mos Insurance 550/yr Utilities 750/yr Repairs & Maintenance 1 400/yr Miscellaneous cottage/boat Expenses 700/yr Other expenses that Leslie and Duncan have include the following: Lifestyle Expenses Food 4 900/yr Dry-cleaning 63/mos Auto Insurance 1 900/yr Auto Licenses 260/yr Gas 183/mos Auto repairs & Maintenance 63/mos Cable TV 43/mos Property Taxes 3 750/yr Home Phone 75/mos Cell Phones 125/mos House Repairs, Maintenance & Landscaping 1 500/yr Personal Care 158/mos Entertainment 325/mos Utilities (house) 225/mos Clothing 5 000/yr

Gifts 1 500/yr Typical Credit Card Debt payment 500/mos

Question: Thoroughly read the Case Study for Duncan & Leslie Plant and complete the following: For presentation to the client, complete a Retirement Needs Analysis. Include an overview that brings it all together with a summary of their: Current situation (With no changes, can they achieve their retirement goal?) Recommended changes to the current situation in order to achieve, or enhance, retirement goal. Note: Make assumptions where required. Include comments regarding any assumptions. In an appendix include all calculations in detail (for any TVM calculations show a summary format of N=, I/Y=, PV=, PMT=, FV=).