Personal Data

Client: Children: Janices parents:

Financial Data

JANICE PETERSON

Janice Peterson, age fifty, Accountant Carolyn, age fourteen Mother, age seventy, terminally ill; father, deceased

Primary residence (Janice) ...................................................................................................................................... $250,000 Mortgage on primary residence.......................................................................................................................... ($205,000) Cash account (Janice)................................................................................................................................................... $6,000 Cash account (Mother) ................................................................................................................................................ $1,000 Janices 401(k) ........................................................................................................................................................... $153,000 Janices investment account...................................................................................................................................... $72,000 Janices automobile ...................................................................................................................................................... $4,000 Janices credit card .................................................................................................................................................. ($13,000)

Income/Expense Data

Janices income ......................................................................................................................................................... $135,000 Janices investment income......................................................................................................................................... $3,500 Family monthly expenses (excluding mortgage and taxes) .................................................................................. $6,000

Other Pertinent Information

• Janice has been a widow for eleven years

• Janices mother is in a nursing home and is terminally ill, and is expected to live only two-four months; she has no remaining assets besides her small bank account, and is currently on Medicaid

• Janice owns a $350,000 term life insurance policy on her mother (it was given to Janice six years ago), and has named herself as beneficiary

• Janice has a will that leaves everything outright to Carolyn and a power-of-attorney and health care power-of- attorney that names her mother as attorney-in-fact

• Janices mother has a will that leaves everything to Janice and a power-of-attorney and health care power-of- attorney that names Janice as attorney-in-fact with no successor

• Janice states that she is extremely conservative, and her investment account is almost entirely (80 percent) fixed-income investments

• Janice contributes $13,000/year to her 401(k)

• Carolyn is the beneficiary of Janices 401(k)

• Janice has a $500,000 twenty year term life insurance policy that was taken out three years ago; Carolyn is the beneficiary

• Janice has a disability insurance policy paid for by her employer that provides 60 percent of her income up to $7,000/month; the policy has a ninety day elimination period and provides benefits until age sixty-five; the policy provides benefits if Janice is unable to perform the duties of any occupation for which she is reasonably qualified by education, training, and experience

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T&T of Financial Planning, 13th edition_CaseStudies.indd 572 7/29/2019 3:34:53 PM

CASE STUDIES

• The primary residence mortgage is a 3/1 ARM thirty year loan, and was taken out one year ago at 4.25 percent; $75,000 of these proceeds were part of a cash-out refinance that was spent on high quality medical treatment for her mother last year while Janice was fully supporting her mother

• Janice is currently paying an 18.99 percent annual interest rate on her credit card debt

  Goals

1. Provide an adequate quality of life for Janices mother in her final months

2. Begin developing a college fund for Carolyn

3. Begin planning for future retirement

Economic Environment

The economy has been growing steadily for several years. Current inflation, as measured by the CPI, is at 3.1 percent. Ninety day T-bill/money market rates are currently 4.5 percent. Long-term government bonds are yielding 6.5 percent. Economic growth was 3.5 percent last year, and unemployment is at 4.5 percent. Interest rates are expected to be flat in the near future. Economic growth is expected to continue to be steady in the coming years.

1. What are the potential concerns of Janices current estate distribution plan?

a) Property will be distributed outright to a minor who cannot legally manage assets

b) Carolyn may not be responsible enough yet to make good spending decisions with such a large amount of assets

c) Both of the above are issues for concern

Personal Financial planning

d) None of the above are issues for concern