Joan Jetson Mini-Case Personal Data Client: Joan Jetson, age 50, Accountant, divorced Children: Debra, age 14 Joan’s parents:

Joan Jetson Mini-Case

Personal Data

Client:                                       Joan Jetson, age 50, Accountant, divorced

Children:                                 Debra, age 14

Joan’s parents:                                    Mothers, age 75, terminally ill; father, deceased

Financial Data

Primary residence (Joan’s)…………………………………………………………………..$500,000

Mortgage on primary residence………………………………………………………….$305,000

Cash account (Joan)…………………………………………………………………………………$6,000

Cash account (Mother)……………………………………………….…………………….…….$1,000

Joan’s 401(k)………………………………………………………………………………………..$125,000

Joan’s IRA………………………………………………………………………………………………$50,000

Joan’s investment account…………………………………………………………………….$75,000

Joan’s automobile…………………………………………………………………………………$24,000

Joan’s credit card debt…………………………………………………………………………..$18,000

Income/Expense Data

Joan’s income…………………………………………………………………………..…………$135,000

Joan’s investment income………………………………………………………………….…..$4,500

Child Support for Debra (monthly)……………………………………………………..…..$1,000

Family monthly expenses (excluding mortgage & taxes)…………………………$7,000

Other Pertinent Information

Joan has been divorced from Debra’s father for six years.

Joan’s mother is in a nursing home and is terminally ill.  She is expected to live only 2-4 months.  She has no remaining assets besides her small bank account and is currently on Medicaid.

Joan owns a $500,000 term life insurance policy on her mother (it was given to Joan six years ago by her mother) and she has named herself as beneficiary.

Joan has a will that leaves everything outright to Debra.  She has a power-of-attorney and health care power-of-attorney that names her mother as attorney-in-fact.

Joan’s mother has a will that leaves everything to Joan and a power-of-attorney and health care power-of-attorney that names Joan as attorney-in-fact with no successor.

Joan states that she is extremely conservative and her investment account is almost entirely invested in fixed income investments.

Joan contributes $15,000 each year to her 401(k).  She wants to contribute the maximum.

Debra is the beneficiary of Joan’s 401(k).

Joan has a $500,000 20-year term life insurance that she took out three years ago; Debra is the beneficiary.

Joan has a disability insurance policy paid by her employer that provides 60% of her income up to a maximum of $7,000/month; the policy has a 90-day elimination period and provides benefits until age 67; the policy provides benefits if Joan is unable to perform the duties of any occupation for which she is reasonably qualified by education, training, and experience.

The primary residence mortgage is a 30-year fixed loan and was taken out 1 year ago at 4.75%.  $100,000 of these proceeds were part of a cash-out refinance that was spent on high quality medical treatment for her mother last year while Joan was fully supporting her mother.

Joan is currently paying a 20.99% annual interest rate on her credit card debt.

Goals

1.              Provide an adequate quality of life for Joan’s mother in her final months.

2.              Begin developing a college fund for Debra.

3.              Begin planning for future retirement.

Economic Environment

The economy has been in recession for several years.  Current inflation, as measured by the CPI, is at 1.1%.  90-day T-bill/money market rates are currently at 1%.  Long-term government bonds are yielding 3%.  Economic growth was 2.5% last year and unemployment is at 5.2%.  Interest rates are expected to be flat in the near future.  Economic growth is expected to improve in the coming years.

QUESTIONS

Please answer the follow questions completely. Justify your response. Show all computations.

Each question is worth 20 points. Submit your response in SafeAssign in the forum provided.

1.  What is the tax treatment of the $100,000 of payments for Joan’s mother’s medical expenses last year? Please provide details.

2.  If you were to draft a Personal Financial Statement for Joan, what would be the total value of Joan’s assets? (List all).

3.  What are the potential problems and concerns for Joan’s current estate distribution plan in the event of her death?

4.  Joan’s mother has accumulated substantial expenses under the Medicaid system.  When Joan’s mother dies, what will the state do concerning these debts?

5.  When Joan’s mother dies, what will be the tax consequences of the life insurance policy Joan owns on her mother?

6.  If Joan were to become disabled tomorrow, what benefits would she receive from her disability policy?  Would the benefits be taxable?

7.  If Joan’s minimum monthly credit card payment is $500, how long would it take her to pay off her credit card?

8.  What are Joan’s monthly mortgage payments, including principal and interest only.  (Round to the nearest dollar.)

9.  Joan would like to begin setting aside money to purchase a car for Debra in two years.  If Joan is prepared to set aside monthly payments to save $15,000 over the next 24 months, and will be investing these funds in a money market, then how much should she should (to the nearest dollar)? Show your work.

10.  If Debra will attend school four years from now, college costs are inflating at 6%, and the current cost of in-state college tuition is $10,000 per year, how much will Debra’s first year of college cost (to the nearest dollar)? Show your work.