Continuing Case Study: Estate Planning

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Since Shelby and Mark are less than 20 years away from retirement, they are also concerned with various estate planning actions.  They have talked about a will and investigated the benefits of several types of trusts.  However, they have not taken any specific actions.

What types of estate planning activities should the Lawrences consider at this time?

Explain how Shelby and Mark might use the Personal Financial Planner sheets on Estate Planning Activities and Will Planning.

Homework 9

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Answer the following:

Calculating gift tax. Barry and his wife Mary have accumulated over $4 million during their 45 years of marriage. They have three children and five grandchildren.
How much money can Barry and Mary gift to their children in 2014 without any gift tax liability?
How much money can Barry and Mary gift to their grandchildren?
What is the total amount of estate removed from Barry and Marys estate?

Calculating the Estate Tax. Joel and Rachel are both retired. Married for 50 years, theyve amassed an estate worth $2.4 million. The couple has no trusts or other types of tax-sheltered assets. If Joel or Rachel dies in 2014, how much federal estate tax would the surviving spouse have to pay, assuming that the estate is taxed at a 45 percent rate?

Continuing Case Study: Retirement Planning

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Shelby and Mark Lawrence are less than 20 years away from retirement. They have one child in college and one in high school. Their primary goals are to help their children with their college expenses and plan for their retirement.

Currently, the balance in Marks pension plan at work is $102,000. This balance is smaller than he would have liked due to fluctuations in the stock market. In addition, the investment plan that he and Shelby started many years ago is now worth $35,000 (includes mostly bond investments and mutual funds). Last year, they had considered an investment in a limited real estate partnership but decided the timing was not right since Blair had begun college. At this point, Shelby and Mark want to evaluate their retirement plans and determine whether they will have enough to fund their retirement.

Their life situation: Shelby is age 45, Mark, age 46. They have two children 19 and 13. Their financial data is:

Monthly gross income      $8,000
Living expenses              $6,500
Assets                              $230,000
Liabilities                          $85,000.

How would you assess the strengths and weaknesses of the Lawrences financial condition at this stage in their lives?

At their current ages, what should their major priorities be as they continue to plan for retirement?

Explain how Shelby and Mark might use the Personal Financial Planner sheets on Retirement Housing and Lifestyle Planning and Forcasting Retirement Income.

Homework: *

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Answer the following:

Calculating Net Worth.
Shellys assets include money in checking and savings accounts, investments in stocks and mutual funds, and personal property, including furniture, appliances, an automobile, a coin collection, and jewelry. Shelly calculates that her total assets are $108,800. Her current unpaid bills, including an auto loan, credit card balances, and taxes total $16,300. Calculate Shellys net worth.

Calculating an IRA Accumulation.
When Jamal graduated from college recently, his parents gave him $1,000 and told him to use it wisely. Jamal decided to use the money to start a retirement
account. After doing some research about different options, he put the entire amount into a tax-deferred IRA that pays 11 percent interest, compounded annually. Calculate how much money Jamal will have in his IRA at the end of ten years, assuming that the interest rate remains the same and that he does not deposit any additional money.

Calculating an IRA Accumulation.
a. Janine is 25 and has a good job at a biotechnology company. She currently has $5,000 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 8 percent, and she plans to leave it untouched until she retires at age 65. Janine estimates that she will need $875,000 in her total retirement nest egg by the time she is 65 in order to have retirement income of $20,000 a year. (She expects that Social Security will pay her an
additional $15,000 a year). How much will Janines IRA be worth when she needs to start withdrawing money from it when she retires? (Hint: Use Exhibit A-1 in the appendix to Chapter 1.).

b. How much money will Janine have to accumulate in her companys 401(k) plan over the next 40 years in order to reach her retirement  income goal?

Dipping into Your Nest Egg.
You have $50,000 in your retirement fund that is earning 5.5 percent per year, compounded quarterly.
a. How many dollars in withdrawals per month would reduce this nest egg to zero in 20 years?

b. How many dollars per month can you withdraw for as long as you live and still leave this nest egg intact?