Instructions

Personal Data

Husband: Jason Dalton, age 51, Senior Executive for XYZ, Inc.

Wife: Andrea Dalton, age 48, Homemaker

Children: Ashley Dalton, age 14 (starting 9th grade); Carl Dalton, age 11 (starting 6th grade)

Jasons parents: Father deceased, Mother, age 77, in nursing home

Andreas parents: Mother, age 68, and Father, age 69, in good health

Other 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
• Jasons 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
• Jasons 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 others retirement accounts
• Andrea is the beneficiary of Jasons 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 homeowners 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 Ashleys and Carls UTMA accounts
• In the Daltons state of residence, minors receive full access to UTMA funds at age 18
• Jasons mother is utilizing her Social Security and survivorship pension income to cover nursing home costs, and will have very little other assets remaining
• Andreas parents have nearly $1,000,000 in retirement assets that they are spending minimally, which will ultimately be divided between Andrea and her sister

Financial Data

Income/Expense Data

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 3%. Long-term government bonds are yielding 5.5%. Economic growth is expected to be 4.5% in the coming year, and unemployment is at 4.5%. Interest rates are expected to rise in the near future.

Goals

1. Resolve divorce proceedings in an equitable manner
2. Provide for college education for Ashley and Carl, assuming $12,500/year (in todays dollars) for four years for each of them

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 AGI (adjusted gross income) is so high that they do not qualify for the bond interest exclusion rules c) 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 the Jason and Andrea's assets would be: a) $3,712,000 b) $3,754,000 c) $3,304,000 d) $3,262,000 15. Jason's maximum 401(k) contribution for 2009 is: a) $13,000 b) $14,000 c) $16,000 d) $22,000 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 $4,000 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 4.25%. The Daltons should choose to: a) Make a lump-sum payment now at the discounted price b) Select the 3-year 0% financing deal