Today is November 4, 2015, and Barbara Lane has come to you, a financial planner, for help in developing a plan to accomplish her financial goals. From your fact-finding meeting together, you have gathered the following information.

PERSONAL BACKGROUND AND INFORMATION

Barbara Lane (Age 69)

Barbara is a retired homemaker. She is a recent widow. Barbara’s 70^th birthday will be April 1, 2016.

Andrew Lane (deceased)

Barbara was married to Andrew who died in February (2014) at the age of 69, after a heart attack.

Andrew’s estate is in probate. Andrew was employed 46 years as a manager at XYC Co., Inc. before retiring at age 65.

The Lanes

They were married 50 years. Barbara’s health is fair.

The Lane’s Children

Barbara has two children from her marriage to Andrew: Ben (Age 50) and Bob (Age 49). Ben and Bob are each married, employed, and self-sufficient.

The Lane’s Grandchildren

Ben and his wife, Joni, have one daughter, Sarah (Age 18). Sarah is currently a senior in high school and will be a freshman at Rather University in the fall. The cost of tuition for Rather is currently $15,000. Barbara would like to pay the university for Sarah’s tuition for this year. As a graduation present, Barbara is paying for Sarah’s trip to Europe this summer. The cost of the trip is $3,000.

Bob and his wife San, have one son, Richard (Age 17). Richard is a junior in high school. Richard is in need of orthodontic work. Barbara is also considering gifting stock worth $13,000 to Richard because she wishes to treat each grandchild equally.

PERSONAL AND FINANCIAL OBJECTIVES

Barbara wants to have sufficient income ($40,000 per year in today’s dollars including any Social Security benefits).

Barbara will consider acquiring a smaller residence

Barbara wants to explore long-term nursing home care alternatives (annual cost of a nursing home in today’s dollars $40,000).

Barbara wants to donate to the American Cancer Society.

Barbara wants to provide for her children and grandchildren.

Barbara wants to pay Sarah’s tuition ($15,000).

Barbara wants to gift stock to Richard ($13,000)

Barbara wants to pay for Richard’s orthodontic work ($6,000).

Barbara wants to send Sarah to Europe ($3,000).

ECONOMIC INFORMATION

Inflation is expected to be 4% annually.

There is no state income tax.

A slow growth economy is expected, and stocks are expected to grow at 9.5%.

Bank lending rates are as follows:

15-year mortgages 6.5%

30-year mortgages 7.5%

Secured personal loan 10.0%

Life Expectancies from MDIB Table:

AGE LIFE EXPECTANCY FACTOR

7026.2

7125.3

7224.4

INSURANCE INFORMATION

Life Insurance

Irrevocable Life Insurance Trust (ILIT)

Andrew created an ILIT 10 years ago. The only asset in the trust is a permanent life policy with a face value of $200,000. The income beneficiary of the ILIT is Barbara (you decide on the income stream). She is also the trustee and has a general power of appointment over the trust assets. The remainder beneficiaries are the grandchildren.

Health Insurance

Andrew and Barbara were both covered under Medicare Part A.

INVESTMENT INFORMATION

Barbara’s investment risk tolerance is low.

INCOME TAX INFORMATION

The Lane’s filed as married filing jointly for 2014. Barbara and Andrew have always lived in a community property state.

RETIREMENT INFORMATION

Andrew had a pension with XYZ with Barbara designated as the beneficiary. The pension currently has a lump sum death benefit of $150,000 (assume a federal/state combined tax bracket of 30%) . As the beneficiary, Barbara can choose to receive a life annuity of $8,000 annually or a lump sum payment from the pension.

Barbara currently has an IRA with Andrew as the named beneficiary. Barbara is the named beneficiary on Andrew’s IRA.

Both Andrew and Barbara began receiving Social Security benefits on their respective 66^th birthdays. Andrew’s benefit for 2015 would have been $1,200 per month, and Barbara’s benefit for 2015 was estimated to be $600 per month.

GIFTS, ESTATES, TRUSTS, AND WILL INFORMATION

Andrew’s will left all probate assets to Barbara. The grandchildren are named as contingent beneficiaries (equally).

Barbara does not have a will.

FINANCIAL DATA

Credit card debt* $20,000

Cash 25,000

Primary residence** 400,000

Auto 18,000

Savings accounts 20,000

Stocks 20,000

IRA 50,000

Pension 150,000

Furniture 77,000

Vacation home*** 200,000

*All liabilities are community property

**Primary residence originally purchased for $110,000

***Inherited from Barbara’s mother. Adjusted cost basis is $125,000

INFORMATION REGARDING ASSETS AND LIABILITIES

Primary Residence

Purchased April 1, 1968

QUESTION

1. List Barbara’s financial strengths and weaknesses.