PART 2: ESTATE PLANNING 1. Fill out the following table upon John's death. (10 pt.) Asset Probatory Asset Value Value included in estate Life insurance 1 $500,000 Life insurance 2 $50,000 Life insurance 3 $0 Checking account $3,000 Crossroads Inc. stocks $8,000 Gladwell Inc. stocks $4,000 Balanced mutual fund $12,000 401(k) plan account $4,320 Auto $0 Truck $12,000 Motor scooter $2,000 Personal property & furniture $25,000 Total $620,320 2. Fill out the following table upon Mary's death. (10 pt.) Asset Probatory Asset Value Value included in estate Life insurance 1 $0 Life insurance 2 $0 Life insurance 3 $26,000 Checking account $3,000 Crossroads Inc. stocks $0 Gladwell Inc. stocks $0 Balanced mutual fund $0 401(k) plan account $0 Auto $18,500 Truck $0 Motor scooter $0 Personal property & furniture $25,000 Total $72,500 3. Based on your analyses in steps 1 and 2, provide specific estate planning for each asset for the Burkes. (10 pt.) John and Mary Burke Case January 11, 20X2 The family John Burke, age 30, is an assistant manager in the marketing department of Florida Gas. His annual salary is $36,000. His wife, Mary, is an administrative assistant with an accounting firm. Mary is also 30 years old and has an annual salary of $26,000. John and Mary have been married for three years and have no children from their marriage. They hope to have two to three children in the next five years. However, John has one child, Patrick (age 4), from a former marriage. Patrick lives with his mother, Kathy, out of state and as a result, John has not seen Patrick for three years. John pays $350 per month in child support to Kathy for Patrick until he reaches age 18. John also pays for a term life insurance policy on himself for Kathy (beneficiary) as a result of the divorce. The contingent beneficiary on the policy is Patrick. Patrick's education is fully funded by a 529 plan established by Kathy's father. Economic information Inflation is expected to be 3.0% annually. The Burkes' salaries should increase 4.0% for the next five to ten years. There is no state income tax. It is expected that there will be a slow growth economy; stocks are expected to return an average of 9.0% annually. Insurance information Life insurance Insured Policy A* John Face amount $500,000 Policy B John $50,000 Policy C Type Term Group term Mary $26,000 Group term Cash value SO SO SO Annual premium $600 $178 $50 Who pays premium John Employer Employer Beneficiary Kathy and Patrick Kathy John Policy owner Settlement options Kathy None John Mary None None clause selected *John is required, as a result of the divorce, to maintain a term life insurance policy (Policy A) of $500,000. The premiums are $50 per month. Health insurance John and Mary are both covered under John's employer health plan. The policy is an indemnity plan with a $300 deductible per person per year and an 80/20 major medical coinsurance clause with a family annual stop loss (out-of-pocket maximum) of $2,000. Patrick's health insurance is provided by his mother. Long-term disability insurance John is covered by an own occupation policy with premiums paid by his employer. The benefits equal 60 percent of his gross pay after an elimination period of 90 days. The policy covers both sickness and accidents and is guaranteed renewable. The term of benefits is to age 66. Mary is not covered by disability insurance. Long-term care insurance Neither John nor Mary have long-term care insurance. Renters insurance The Burkes have an HO4 renters policy (a Contents Broad Form policy that covers contents and liability) without endorsements. The annual premium is $600. Content coverage is $25,000 and liability coverage is $100,000. Automobile insurance Both their car and truck are covered. They do not have any separate insurance on John's motor scooter. Type Bodily injury Property damage Medical payment Physical damage Uninsured motorist Comprehensive deductible Collision deductible Premium (annual) Personal liability insurance PAP $50,000/$100,000 $10,000 $5,000 per person Actual cash value $25,000/$50,000 $200 $500 $3,600 Neither John nor Mary have PLUP coverage. Gifts, Estates, Trusts, and Will information John has a will leaving all of this probate estate to Patrick. He did not change the will after his marriage to Mary. 2 Mary does not have a will. The Burkes live in a common law property state. Statement of Financial Position 1/1/20X2 Statement of Financial Position John and Mary Burke Balance Sheet as of 1/1/20X2 Assets Liabilities and Net Worth Current Assets Current Liabilities JT Checking Account $3,000 H Credit card Balance $336 Visa JT Savings Account $0 W Credit Card Balance $187 MC Total Current Assets $3,000 W Auto Loan - Mary $3.192 Investment Assets H Student Loan - Johan $3,813 H Crossroads Inc $8,000 Total Current Liabilities $7,528 (1,000 Shares) H Gladwell Inc. (100 shares) $4,000 Long-Term Liabilities H Balanced Mutual Fund $12,000 H Credit Card Balance $8.664 Visa H 401(k) Plan Account $4.320 W Credit Card Balance $4,813 Balance MC Total Investment Assets $28,320 W Auto Loan - Mary $6,856 Personal Use Assets H Student Loan - John4 $50,485 W Auto-Mary $18.500 Total Long-Term $70,818 Liabilities H Truck - John $12,000 H Motor scooter - John $2,000 Total Liabilities JT Personal Property & Furniture $25,000 Total Net Worth Total Personal Use Assets $57,500 Total Liabilities & Net $78,346 $10,475 $88.820 Worth Total Assets $88,820 Assets are stated at fair market value. Numbers may be rounded. Liabilities are stated at principal only as of January 1, 20X2 (prior to January payments). The current portion of long- term debt is included in current liabilities. Crossroads Inc.'s current dividend is $0.34 per year per share and is reinvested. 4The interest rate on the student loan is 7.3842% for a 10-year term on a consolidation loan John just made. JI = Joint tenancy; H= Husband; W= Wife 3