1. The Taylor's don't have any estate planning documents in place. What do you recommend they do and why?

THE TAYLOR FAMILY Personal Information and Background Jim and Anne Taylor have been married for 8 years. They have 2 children, Tommy age 5, Sally age 3, and are expect- ing their third child in approximately 4 months. They live in a comfortable four-bedroom suburban home at 1235 Melbourne Street in Potown, USA. They are fax and phone ready at (888) 555-1357. Their email address is jat.email@net.com. Both Jim and Anne are riding the learning curve into the age of technology. Jim Taylor Jim Taylor is 35 years old. His birthday is on December 14th Jim works as a quantum physics lab research assistant for a private firm, Blue l'in. He earns approximately $47,500 per year. Jim's alma mater is MIT. Anne Taylor Anne is 31 years old and her birthday is on November 12th She eams $45,000 per year. Anne graduated with an Master's in Education from Radcliffe. Anne has gone back to work after a brief sabbatical upon Sally's birth, as a school district administrator. Their combined take-home pay is about $5,100 per month. Tommy Taylor Tommy is 5 years old, and attends kindergarten at a local public elementary school. He goes to day-care in the after- noon. Sally Taylor Sally is 3 years old, too young to attend school. So the Taylors have made arrangements for her to stay with a baby- sitter during the day, and then to attend day-care in the afternoon when Tommy is there after school. She will be start- ing nursery school next year. Personal and Financial Goals The Taylors try to set aside (in some form of either savings, investment or retirement plan) at least 10% of their income every month. Both Jim and Anne plan to retire at age 65. They would like to see their children attend the same schools they did, but it is not necessary, and they are not sure this is financially possible. Jim and Anne's conocin that the children all go to college. When the baby is born, if possible, Anne would like to take the full one year of maternity lcave that's availablc. Only 3 months of this is paid leave time. She plans to work right up to her due date. The Taylors take a "Camily vacation" every year. It is usually a trip where they plan to spend around $2,500, and save for throughout the year, but are willing to forego the larger vacations (in favor of smaller oncs) for larger . goals. THE TAYLOR FAMILY 61 STUDY GUIDE Economic Information The Taylors feel that inllation will probably average about 4% over the years, They are comfortable assuming that they can attain an after-tax interest rate of 7% fairly consistently in good times and bad, The Taylors estimate that tuition and other expenses at the college level are currently around $25,000 per year. Jim and Anne think that tuition will reach S40,000 per year by the time their children are ready to attend college at age 18. The Taylors do not believe Social Security will be available as we know it today to assist them in their retirement The Taylors' monthly living expenses above and beyond housing costs are approximately $2,400 per month This includes credit card and charge card repayments of $500 per month, with an outstanding balance of $8.975. It also includes groccry bills of $600 per month. Their utilities - gas, electric, and phone - total $300 per month. Current four-year auto loan rates are 8.5% and 20-year mortgage rates are available at 7.5% with 3 points to be paid by the buyer. Insurance Information Life Insurance As their life insurance agent you know that Jim and Anne have about $125,000 of life insurance on each of their lives through their work, and that they have named one another beneficiary. There is no disability income coverage, and no personal life insurance with the exception of two $10,000 whole life policies that they bought when they first got married. These were, and still are meant to be used to cover burial and any other last expenses. One of these policies (Jim's) has a children's rider on it that covers the kids for $5,000 cach for $2 per month The money that they put into their own retirement programs is all that they feel they will have should they live to retirement or should one of them dic prematurely. In the event of death of either one of thein, both Anne and Jim agree that their monthly expenses would continue at about the same as they are today, but once the children finish col- legc their monthly expense requirements would be about half of what they are currently. And in the event of an untimely death of either of them, they agree that it would be best to maintain the same residence, so as not to uproot and upset the children anymore than necessary, Medical Expense Insurance Jim's major medical plan covers the children but has no maternity or well-baby care. Anne uses her IIMO coverage to theet her medical needs. The entire family is currently in excellent health. Last year they did satisfy the $300 deduct- ihle on two family members and utilized only $2,000 of the 80% - 20% coinsurance amount when Tommy broke his arm while playing ball. They did not rcach the $5,000 stop-loss limit nor do they expect to this year. Neither plan pro- vides dental and costs last year for the entire family were $1,740. They are expected to be about the same this year. llonieowners Insurance They own their own home. It has a current market value of $149,950 and replacement cost of over $350,000. The bank holds a 20-year adjustabic rate note, currently at 8.75%. It has risen slightly from when they first bought the home exactly 5 years ago. They have a $751 house payment per month. Insurance and taxes run approximately $200 per month. It is a 150-year old classic Victorian style, which they purchased for $85,000, and financed at 80% loan to value. Two years ago the Taylors took out a 10-year home equity loan to do some improvements on the house. Their furnishings are mainly antique and valued at $47,000, while the remainder of their personal property has an aggregate value of around $22.000. Jim recently invested $3,500 in a coin collection, and Anne vollects antique jewelry. Her collection was recently appraised at $17,800 and she also has an antique glass figurine collection that she received from her grandmother val- ued at $5,200. The Taylors have modified basic (used for older houses) coverage at 80% of the value of the price, that they took out when they bought the house. They did not get the inflation protection package. 62 SECTION 3 - CASE STUDIES Automobile Insurance Jim drives a Jeep Cherokee. Anne drives a BMW. The combined note on these two vehicles was consolidated for $25,000, at 10%, with three years left to pay on the six-year note, at $463 per month. Maintenance, fuel, repair, and insurance costs for both vehicles run $473 per month with the auto insurance making up half of that expense amount Their Family Auto Policy has $100,000-$300,000 liability, uninsured, and underinsured motorist coverage, $50,000 property damage, and $25,000 medical payment coverage. They have a $500 deductible on their collision coverage and a $100 deductible on their "Other Than Collision" coverage. Jim and Anne also carry a personal umbrella liabil- ity policy for $1,000,000 of additional coverage. Investment Information Jim and Anne bank with John Smedley at the Second National Bank and have approximately $12,000 in CDs that come due within 30 days, and another $1,255 in their NOW checking account. Their broker Jerry Burnham, with Investors Group, Inc. has helped them put away $5,700 in their Money Market account and another $7,500 in growth and income mutual funds including $1,500 of that in an old IRA that was rolled over for Annc. The remainder is divided evenly between a municipal bond fund paying 6.25% and an emerging growth fund paying an average of 15% over the last several years. Jim and Anne have asked about, and are considering, other types of investments. They have heard that gold or real estate might be a good place to put their money. Their goals include long-tenn growth with moderate concern for safety in the long run. They are not risk-averse, nor are they high-risk investors. Rather, they are moderate risk-takers with a concern for the future for themselves, for each other, and above all for their children. It is their goal to maxi- mize their investments while minimizing their tax liabilities. Income Tax Information The Taylors are in a 34% marginal tax bracket for combined state and federal tax purposes. Their filing status on their retum is "Married Filing Jointly." The state they live in has a state income tax and a sales tax. Retirement Information Jim has accumulated $8,500 that he has contributed to his 401(k) plan through his work. It is currently invested 50/50 in the fixed income and money market funds earning about 6% and 4%, respectively. Sim is planning on putting 3% of his gross income into the plan to secure the matching funds that Blue Fin is willing to make and is considering changing the fund investment percentages. Anne is listed as beneficiary of his retirement proceeds. Anne has just started a Tax Sheltered Annuity with a $2,000 one-time contribution and is planning to make conti- ing contributions of 5% of her gross income each month. Jim is the primary seneficiary listed on all of Anne's retire- ment arrangements. The one-time catch-up amount that Anne made was placed in a Goveriment Bond fund, but she is also considering a inore aggressive approach for her additional contributions, Estate, Trust, and Will Information The Taylors live in a common law state. Jim and Anne have not set up any wills at this point because they were not sure who they had wanted to take care of the children if anything happened. They have recently decided that Jim's brother Butch and his wife Gayle would be the ideal guardians for the children but they want to wait until they talk to them about it before making such arrangements. THE TAYLOR FAMILY 63 STUDY GUIDE Jim and Anne Taylor Statement of Cash Flows for the Period January 1 - December 31, 2018 INFLOWS Jim's salary Anne's salary Interest income TOTAL INFLOWS $47,500 S45,000 $1,700 $94,200 $2,400 OUTFLOWS Savings and investments Fixed Outflows Residence mortgage payment (PITI) Auto note payments Home equity loan payment Credit card repayment Federal income taxes State income taxes FICA taxes Life insurance premiums Auto insurance praniums Umbrella liability insurance Vacation fund contributions 401(k) contributions 403(b) contributions $11,400 5,550 3,888 6,000 18,134 2,300 7,076 494 2,838 527 2,500 1,425 2,250 Total Fixed Outflows $64,382 Variablc Outflows Food Entertainment Transportation maintenance Child care expenses Modical/dental care (co-pay & deductibles) Utilities and phone $7.200 3,600 2,850 8,000 3,340 2,428 Total Variable Outflows TOTAL OUTFLOWS $ 27,418 $94,200 64 SECTION 3 - CASE STUDIES Jim and Anne Taylor Statement of Financial Position for the Year Ending December 31, 2018 ASSETS LIABILITIES & NET WORTH Cash and Cash Equivalents Money market fund (H) NOW Checking (1) Certificates of deposit (W) Total Cash & Equivalents $5,700 $1,255 $12,000 $18,955 Current Liabilities Credit card balance Auto note balance Total Current Liabilities $8,975 $14,350 $23,325 Long-term Liabilities Residence mortgage Home equity loan Total Long-term Liabilities $75,150 $21,695 $96,845 Invested Assets 401(k) (H) 403(b) (W) IRA Rollover (W) Muni-bond mutual fund (J) Emerging growth mutual fund (J) Antique jewelry (W) Antique figurines (W) Coin collection (H) Cash Value Jim's Insurance (H) Cash Value Anne's Insurance (W) Total Invested Assets $8,500 $2,000 $1,500 $3,000 $3,000 $17,800 $5,200 $3,500 $1,750 $1,410 $47,660 Total Liabilities $120,170 Net Worth $203,845 Use Assets Residence- land is $25,000 (J) Jeep Cherokee (H) BMW 318 (W) Household furnishings (J) Personal property (TIC) Total Use Assets $149,950 $22,500 $15,950 $47,000 $22.000 $257,400 TOTAL LIABILITIES & NET WORTH TOTAL ASSETS $324,015 $324,015 THE TAYLOR FAMILY 65 THE TAYLOR FAMILY Personal Information and Background Jim and Anne Taylor have been married for 8 years. They have 2 children, Tommy age 5, Sally age 3, and are expect- ing their third child in approximately 4 months. They live in a comfortable four-bedroom suburban home at 1235 Melbourne Street in Potown, USA. They are fax and phone ready at (888) 555-1357. Their email address is jat.email@net.com. Both Jim and Anne are riding the learning curve into the age of technology. Jim Taylor Jim Taylor is 35 years old. His birthday is on December 14th Jim works as a quantum physics lab research assistant for a private firm, Blue l'in. He earns approximately $47,500 per year. Jim's alma mater is MIT. Anne Taylor Anne is 31 years old and her birthday is on November 12th She eams $45,000 per year. Anne graduated with an Master's in Education from Radcliffe. Anne has gone back to work after a brief sabbatical upon Sally's birth, as a school district administrator. Their combined take-home pay is about $5,100 per month. Tommy Taylor Tommy is 5 years old, and attends kindergarten at a local public elementary school. He goes to day-care in the after- noon. Sally Taylor Sally is 3 years old, too young to attend school. So the Taylors have made arrangements for her to stay with a baby- sitter during the day, and then to attend day-care in the afternoon when Tommy is there after school. She will be start- ing nursery school next year. Personal and Financial Goals The Taylors try to set aside (in some form of either savings, investment or retirement plan) at least 10% of their income every month. Both Jim and Anne plan to retire at age 65. They would like to see their children attend the same schools they did, but it is not necessary, and they are not sure this is financially possible. Jim and Anne's conocin that the children all go to college. When the baby is born, if possible, Anne would like to take the full one year of maternity lcave that's availablc. Only 3 months of this is paid leave time. She plans to work right up to her due date. The Taylors take a "Camily vacation" every year. It is usually a trip where they plan to spend around $2,500, and save for throughout the year, but are willing to forego the larger vacations (in favor of smaller oncs) for larger . goals. THE TAYLOR FAMILY 61 STUDY GUIDE Economic Information The Taylors feel that inllation will probably average about 4% over the years, They are comfortable assuming that they can attain an after-tax interest rate of 7% fairly consistently in good times and bad, The Taylors estimate that tuition and other expenses at the college level are currently around $25,000 per year. Jim and Anne think that tuition will reach S40,000 per year by the time their children are ready to attend college at age 18. The Taylors do not believe Social Security will be available as we know it today to assist them in their retirement The Taylors' monthly living expenses above and beyond housing costs are approximately $2,400 per month This includes credit card and charge card repayments of $500 per month, with an outstanding balance of $8.975. It also includes groccry bills of $600 per month. Their utilities - gas, electric, and phone - total $300 per month. Current four-year auto loan rates are 8.5% and 20-year mortgage rates are available at 7.5% with 3 points to be paid by the buyer. Insurance Information Life Insurance As their life insurance agent you know that Jim and Anne have about $125,000 of life insurance on each of their lives through their work, and that they have named one another beneficiary. There is no disability income coverage, and no personal life insurance with the exception of two $10,000 whole life policies that they bought when they first got married. These were, and still are meant to be used to cover burial and any other last expenses. One of these policies (Jim's) has a children's rider on it that covers the kids for $5,000 cach for $2 per month The money that they put into their own retirement programs is all that they feel they will have should they live to retirement or should one of them dic prematurely. In the event of death of either one of thein, both Anne and Jim agree that their monthly expenses would continue at about the same as they are today, but once the children finish col- legc their monthly expense requirements would be about half of what they are currently. And in the event of an untimely death of either of them, they agree that it would be best to maintain the same residence, so as not to uproot and upset the children anymore than necessary, Medical Expense Insurance Jim's major medical plan covers the children but has no maternity or well-baby care. Anne uses her IIMO coverage to theet her medical needs. The entire family is currently in excellent health. Last year they did satisfy the $300 deduct- ihle on two family members and utilized only $2,000 of the 80% - 20% coinsurance amount when Tommy broke his arm while playing ball. They did not rcach the $5,000 stop-loss limit nor do they expect to this year. Neither plan pro- vides dental and costs last year for the entire family were $1,740. They are expected to be about the same this year. llonieowners Insurance They own their own home. It has a current market value of $149,950 and replacement cost of over $350,000. The bank holds a 20-year adjustabic rate note, currently at 8.75%. It has risen slightly from when they first bought the home exactly 5 years ago. They have a $751 house payment per month. Insurance and taxes run approximately $200 per month. It is a 150-year old classic Victorian style, which they purchased for $85,000, and financed at 80% loan to value. Two years ago the Taylors took out a 10-year home equity loan to do some improvements on the house. Their furnishings are mainly antique and valued at $47,000, while the remainder of their personal property has an aggregate value of around $22.000. Jim recently invested $3,500 in a coin collection, and Anne vollects antique jewelry. Her collection was recently appraised at $17,800 and she also has an antique glass figurine collection that she received from her grandmother val- ued at $5,200. The Taylors have modified basic (used for older houses) coverage at 80% of the value of the price, that they took out when they bought the house. They did not get the inflation protection package. 62 SECTION 3 - CASE STUDIES Automobile Insurance Jim drives a Jeep Cherokee. Anne drives a BMW. The combined note on these two vehicles was consolidated for $25,000, at 10%, with three years left to pay on the six-year note, at $463 per month. Maintenance, fuel, repair, and insurance costs for both vehicles run $473 per month with the auto insurance making up half of that expense amount Their Family Auto Policy has $100,000-$300,000 liability, uninsured, and underinsured motorist coverage, $50,000 property damage, and $25,000 medical payment coverage. They have a $500 deductible on their collision coverage and a $100 deductible on their "Other Than Collision" coverage. Jim and Anne also carry a personal umbrella liabil- ity policy for $1,000,000 of additional coverage. Investment Information Jim and Anne bank with John Smedley at the Second National Bank and have approximately $12,000 in CDs that come due within 30 days, and another $1,255 in their NOW checking account. Their broker Jerry Burnham, with Investors Group, Inc. has helped them put away $5,700 in their Money Market account and another $7,500 in growth and income mutual funds including $1,500 of that in an old IRA that was rolled over for Annc. The remainder is divided evenly between a municipal bond fund paying 6.25% and an emerging growth fund paying an average of 15% over the last several years. Jim and Anne have asked about, and are considering, other types of investments. They have heard that gold or real estate might be a good place to put their money. Their goals include long-tenn growth with moderate concern for safety in the long run. They are not risk-averse, nor are they high-risk investors. Rather, they are moderate risk-takers with a concern for the future for themselves, for each other, and above all for their children. It is their goal to maxi- mize their investments while minimizing their tax liabilities. Income Tax Information The Taylors are in a 34% marginal tax bracket for combined state and federal tax purposes. Their filing status on their retum is "Married Filing Jointly." The state they live in has a state income tax and a sales tax. Retirement Information Jim has accumulated $8,500 that he has contributed to his 401(k) plan through his work. It is currently invested 50/50 in the fixed income and money market funds earning about 6% and 4%, respectively. Sim is planning on putting 3% of his gross income into the plan to secure the matching funds that Blue Fin is willing to make and is considering changing the fund investment percentages. Anne is listed as beneficiary of his retirement proceeds. Anne has just started a Tax Sheltered Annuity with a $2,000 one-time contribution and is planning to make conti- ing contributions of 5% of her gross income each month. Jim is the primary seneficiary listed on all of Anne's retire- ment arrangements. The one-time catch-up amount that Anne made was placed in a Goveriment Bond fund, but she is also considering a inore aggressive approach for her additional contributions, Estate, Trust, and Will Information The Taylors live in a common law state. Jim and Anne have not set up any wills at this point because they were not sure who they had wanted to take care of the children if anything happened. They have recently decided that Jim's brother Butch and his wife Gayle would be the ideal guardians for the children but they want to wait until they talk to them about it before making such arrangements. THE TAYLOR FAMILY 63 STUDY GUIDE Jim and Anne Taylor Statement of Cash Flows for the Period January 1 - December 31, 2018 INFLOWS Jim's salary Anne's salary Interest income TOTAL INFLOWS $47,500 S45,000 $1,700 $94,200 $2,400 OUTFLOWS Savings and investments Fixed Outflows Residence mortgage payment (PITI) Auto note payments Home equity loan payment Credit card repayment Federal income taxes State income taxes FICA taxes Life insurance premiums Auto insurance praniums Umbrella liability insurance Vacation fund contributions 401(k) contributions 403(b) contributions $11,400 5,550 3,888 6,000 18,134 2,300 7,076 494 2,838 527 2,500 1,425 2,250 Total Fixed Outflows $64,382 Variablc Outflows Food Entertainment Transportation maintenance Child care expenses Modical/dental care (co-pay & deductibles) Utilities and phone $7.200 3,600 2,850 8,000 3,340 2,428 Total Variable Outflows TOTAL OUTFLOWS $ 27,418 $94,200 64 SECTION 3 - CASE STUDIES Jim and Anne Taylor Statement of Financial Position for the Year Ending December 31, 2018 ASSETS LIABILITIES & NET WORTH Cash and Cash Equivalents Money market fund (H) NOW Checking (1) Certificates of deposit (W) Total Cash & Equivalents $5,700 $1,255 $12,000 $18,955 Current Liabilities Credit card balance Auto note balance Total Current Liabilities $8,975 $14,350 $23,325 Long-term Liabilities Residence mortgage Home equity loan Total Long-term Liabilities $75,150 $21,695 $96,845 Invested Assets 401(k) (H) 403(b) (W) IRA Rollover (W) Muni-bond mutual fund (J) Emerging growth mutual fund (J) Antique jewelry (W) Antique figurines (W) Coin collection (H) Cash Value Jim's Insurance (H) Cash Value Anne's Insurance (W) Total Invested Assets $8,500 $2,000 $1,500 $3,000 $3,000 $17,800 $5,200 $3,500 $1,750 $1,410 $47,660 Total Liabilities $120,170 Net Worth $203,845 Use Assets Residence- land is $25,000 (J) Jeep Cherokee (H) BMW 318 (W) Household furnishings (J) Personal property (TIC) Total Use Assets $149,950 $22,500 $15,950 $47,000 $22.000 $257,400 TOTAL LIABILITIES & NET WORTH TOTAL ASSETS $324,015 $324,015 THE TAYLOR FAMILY 65