AssumptionsAssumptions that can be changed for the caseAs the ins.docx

AssumptionsAssumptions that can be changed for the case:As
the instructor, make entries on the yellow cells of this tab. The
information in the yellow cells will automatically calculateand
flow to the remaining tabs. Therefore, the remaining cells are
locked down.Date of Balance Sheet and Investment PortfolioAs
of December 31, 2017Time Period for Statement of Cash
FlowsFor the Period January 1 - December 31, 2017Risk-free
Rate2.75%(Enter a number between 0.95% - 5.25%)Market Risk
Premium7.50%(Enter a number between 4.00% - 9.25%)Market
Standard Deviation12.25%(Enter a number between 9.00% -
13.00%)Inflation Rate3.00%(Enter a number between 2.00% -
5.00%)Savings Account945,000(Enter a number $0 -
$1,000,000)Credit Card Debt14,708(Enter a number $0 -
$20,000)Estate as Beneficiary for Life InsurancenoType "Yes"
or "No"Stock Portfolio Inputs that can be changed:Stock A's
Beta1.1(Enter a beta between 0.5 - 2.10)Stock A's Expected
Dividend Growth Rate3.25%(Enter a growth rate between 2.75%
- 3.25%)Stock A's Cost Basis200,000(Enter a cost basis rate
between $75,000 - $200,000)Bond Inputs that can be
changed:Treasury Security A - 2 years to
maturity$300,000(Enter a beta between $100,000 -
$400,000)Corporate Security B - 4.5 years to
maturity$200,000Total Bond Portfolio$500,000Par
&TotalCoupon 1Coupon 2Coupon 3Coupon 4FMVTreasury
Security A - 2 years to maturity1.5000%(Enter a coupon rate
between 2.00% - 3.00%)0.000.000.000.00Current Yield for
Treasury Security A1.6500%(This will create a discount bond
calculation)1.00831.01661.02501.03340.000.000.000.000.00Par
&Coupon 1Coupon 2Coupon 3Coupon 4Coupon 5Coupon
6Coupon 7Coupon 8Coupon 9Coupon 10Coupon 11Coupon
24FMVTreasury Security B - 12 years to
maturity3.5000%(Enter a coupon rate between 4.00% -

4.50%)0.000.000.000.000.000.000.000.000.000.000.000.000.00
0.000.000.000.000.000.000.000.000.000.000.00Current Yield
for Treasury Security B3.8500%(This will create a discount
bond
calculation)1.01931.03891.05891.07931.10001.12121.14281.16
481.18721.21011.23341.25711.28131.30601.33111.35671.38281
.40951.43661.46421.49241.52121.55041.58030.000.000.000.00
0.000.000.000.000.000.000.000.000.000.000.000.000.000.000.0
00.000.000.000.000.000.00Par &Coupon 1Coupon 2Coupon
51Coupon 52Coupon 53Coupon 54Coupon 55Coupon
56FMVTreasury Security C - 28 years to
4.50%)0.000.000.000.000.000.000.000.000.000.000.000.000.00
0.000.000.000.000.000.000.000.000.000.000.000.000.000.000.0
00.000.000.000.000.000.000.000.000.000.000.000.000.000.000.
000.000.000.000.000.000.000.000.000.000.000.000.000.00Curre
nt Yield for Treasury Security C4.4000%(This will create a
discount bond
calculation)1.02201.04451.06751.09091.11491.13951.16451.19
021.21631.24311.27051.29841.32701.35621.38601.41651.44771
.47951.51211.54531.57931.61411.64961.68591.72291.76091.79
961.83921.87961.92101.96332.00652.05062.09572.14182.18892
.23712.28632.33662.38802.44052.49422.54912.60522.66252.72
112.78092.84212.90472.96863.03393.10063.16883.23853.30983
.38260.000.000.000.000.000.000.000.000.000.000.000.000.000.
000.000.000.000.000.000.000.000.000.000.000.000.000.000.000
.000.000.000.000.000.000.000.000.000.000.000.000.000.000.00
0.000.000.000.000.000.000.000.000.000.000.000.000.000.00Par

&Coupon 1Coupon 2Coupon 3Coupon 4Coupon 5Coupon
18Coupon 19FMVFlorida Revenue Bond - 9.5 years to
4.50%)0.000.000.000.000.000.000.000.000.000.000.000.000.00
0.000.000.000.000.000.00Current Yield for Florida Revenue
Bond3.6500%(This will create a discount bond
calculation)1.01831.03681.05581.07501.09461.11461.13501.15
571.17681.19821.22011.24241.26501.28811.31161.33561.36001
.38481.41000.000.000.000.000.000.000.000.000.000.000.000.00
0.000.000.000.000.000.000.000.00PMT 1PMT 2PMT 3PMT
4PMT 5PMT 6PMT 7PMT 8PMT 9PMT 10PMT 11PMT 12PMT
13PMT 14PMT 15PMT 16PMT 17PMT 18PMT 19PMT 20PMT
101PMT 102PMT 103PMT 104PMT 105PMT 106PMT 107PMT

248PMT 249PMT 250PMT 251Mortgage Interest Rate on
Primary
Residence0.0000%Payment000000000000000000000000000000
00000000000000000000000000000000000000000000000000000
00000000000000000000000000000000000000000000000000000
00000000000000000000000000000000000000000000000000000
00000000000000000000000000000000000000000000000000000
000000000Beginning Mortgage Amount$0Interest-----------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------Monthly Mortgage Payment$0.00Principal----------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
----------Next 12 Months of Principal$0Remaining Long-Term
Mortgage Principal$0Net Mortgage
Outstanding0000000000000000000000000000000000000000000
00000000000000000000000000000000000000000000000000000
00000000000000000000000000000000000000000000000000000
00000000000000000000000000000000000000000000000000000
0000000000000000000000000000000000000000000000000PMT
1PMT 2PMT 3PMT 4PMT 5PMT 6PMT 7PMT 8PMT 9PMT

238PMT 239PMT 240Mortgage Interest Rate on Vacation
Home5.0000%Payment6276276276276276276276276276276276
27627627627627627627627627627627627627627627627627627
62762762762762762762762762762762762762762762762762762
76276276276276276276276276276276276276276276276276276
27627627627627627627627627627627627627627627627627627
62762762762762762762762762762762762762762762762762762
76276276276276276276276276276276276276276276276276276
27627627627627627627627627627627627627627627627627627

62762762762762762762762762762762762762762762762762762
76276276276276276276276276276276276276276276276276276
27627627627627627627627627627627627627627627627627627
62762762762762762762762762762762762762762762762762762
76276276276276276276276276276276276276276276276276276
27627627627627627627627627627627627627627627627627Be
ginning Mortgage
Amount$95,000Interest(396)(395)(394)(393)(392)(391)(390)(38
9)(388)(387)(386)(385)(384)(383)(382)(381)(380)(379)(378)(37
7)(376)(375)(374)(373)(372)(371)(369)(368)(367)(366)(365)(36
4)(363)(362)(361)(360)(359)(357)(356)(355)(354)(353)(352)(35
1)(349)(348)(347)(346)(345)(344)(342)(341)(340)(339)(338)(33
6)(335)(334)(333)(332)(330)(329)(328)(327)(325)(324)(323)(32
2)(320)(319)(318)(316)(315)(314)(313)(311)(310)(309)(307)(30
6)(305)(303)(302)(301)(299)(298)(296)(295)(294)(292)(291)(29
0)(288)(287)(285)(284)(282)(281)(280)(278)(277)(275)(274)(27
2)(271)(269)(268)(266)(265)(263)(262)(260)(259)(257)(256)(25
4)(253)(251)(249)(248)(246)(245)(243)(242)(240)(238)(237)(23
5)(233)(232)(230)(228)(227)(225)(223)(222)(220)(218)(217)(21
5)(213)(212)(210)(208)(206)(205)(203)(201)(199)(198)(196)(19
4)(192)(190)(188)(187)(185)(183)(181)(179)(177)(176)(174)(17
2)(170)(168)(166)(164)(162)(160)(158)(156)(154)(152)(150)(14
8)(146)(144)(142)(140)(138)(136)(134)(132)(130)(128)(126)(12
4)(122)(120)(118)(116)(113)(111)(109)(107)(105)(103)(100)(98
)(96)(94)(92)(89)(87)(85)(83)(80)(78)(76)(74)(71)(69)(67)(64)(
62)(60)(57)(55)(52)(50)(48)(45)(43)(40)(38)(35)(33)(31)(28)(2
6)(23)(21)(18)(15)(13)(10)(8)(5)(3)Monthly Mortgage
Payment$626.96Principal23123223323423523623723823924024
12422432442452462472482492502512522532542552562582592
60261262263264265266267268270271272273274275276278279
28028128228328528628728828929129229329429529729829930
03023033043053073083093103123133143163173183203213223
24325326328329330332333335336337339340342343345346347
34935035235335535635835936136236436536736837037137337
43763783793813823843853873893903923943953973984004024
03405407409410412414415417419421422424426428429431433

43543743844044244444644845045145345545745946146346546
74694714734754764784804824844874894914934954974995015
03505507509511514516518520522524526529531533535538540
54254454754955155355655856056356556757057257557757958
2584587589592594596599601604606609612614617619622624
Next 12 Months of Principal6,711Remaining Long-Term
Mortgage Principal12,581Net Mortgage
Outstanding94,76994,53794,30494,07093,83593,59993,36293,1
2492,88592,64592,40492,16291,91991,67591,43091,18490,9379
0,68990,44090,19089,93989,68689,43389,17988,92488,66788,4
1088,15187,89187,63187,36987,10686,84286,57786,31086,0438
5,77585,50585,23484,96384,69084,41684,14083,86483,58683,3
0883,02882,74782,46582,18181,89781,61181,32481,03680,7478
0,45680,16579,87279,57879,28278,98678,68878,38978,08877,7
8777,48477,18076,87476,56876,26075,95175,64075,32875,0157
4,70174,38574,06873,75073,43073,10972,78772,46372,13871,8
1271,48471,15570,82470,49270,15969,82569,48869,15168,8126
8,47268,13067,78767,44367,09766,74966,40166,05065,69965,3
4564,99164,63464,27763,91863,55763,19562,83162,46662,0996
1,73161,36160,99060,61760,24359,86759,49059,11058,73058,3
4857,96457,57857,19156,80356,41256,02055,62755,23254,8355
4,43654,03653,63453,23152,82652,41952,01051,60051,18850,7
7450,35949,94249,52349,10248,68048,25647,83047,40246,9734
6,54246,10945,67445,23744,79944,35843,91643,47243,02642,5
7942,12941,67841,22540,76940,31239,85339,39238,93038,4653
7,99837,52937,05936,58636,11235,63535,15734,67634,19433,7
0933,22332,73432,24431,75131,25730,76030,26129,76029,2572
8,75228,24527,73627,22426,71126,19525,67725,15724,63524,1
1123,58423,05622,52521,99221,45620,91920,37919,83719,2931
8,74618,19717,64617,09316,53715,97915,41914,85614,29113,7
2313,15412,58112,00711,43010,85110,2699,6859,0988,5097,91
87,3246,7276,1285,5274,9234,3163,7073,0962,4821,8651,2466
24(0)
Kemp CaseJohn and Mary KempYou are a financial planner and
you have met with new clients John and Mary Kemp several
times to gather information for the purposes ofdeveloping a

comprehensive financial plan. You will provide a $10,000
payment to the estate planning attorney who recommended them
toyou.John Kemp is 68 years old, and his wife, Mary, is 68.
They have two children, Steven, age 38, and Robert, age 36.
They also have threegrandchildren. Steven has two sons,
Michael, age 15, and James, age 10. Robert has a daughter Sara,
age 11. Robert's wife, Sara's mother,died in an automobile
accident approximately 2 years ago. All of the Kemp family
members are in excellent health.John had his own business in
marketing and was extremely successful. He sold his business 3
weeks ago to his a third party for $6,000,000using an
installment note. The terms of the agreement are: 20% down
payment, 10-year, 4.5% note that will start paying quarterly
installmentpayments starting on May 1, 2017.The Kemp's live
in a home that they had built in 1983. The home is located in
River Edge, NJ and is titled in both spouse's names.
Johninherited a summer home in Burlington, Vermont. His dad
had the home built in 1972 for $35,000. He received the home
in 1989 when hisdad died. The property was worth $150,000 at
his father's death. Since this time, John has made $130,000 of
improvements.John owned a marketing company for the
majority of his career. For the past 20 years, Mary was a cashier
at the local Shop-Rite grocerystore. Both spouses retired when
John sold his business and want to know when they should
begin collecting Social Security benefits. Themonthly Social
Security benefits are $1,200 for John and $750 for Mary. They
both held 401(k) retirement accounts at their previous jobs.The
couple has just returned from a two week vacation in Europe.
The current credit card balance on Mary's card from this trip
and will bepaid in full when the bill is received.John's dad used
to collect stamps as a child. When his dad died in 1989, his
mother received a 1918, mint, 24 cent, "inverted Jenny"
stamp.He purchased the stamp in 1972 for $75,000 and it was
worth $500,000 on his death. John's mother just gifted to him
the stamp when thevalue was $725,000. He believes this is a
great investment that will appreciate approximately 8% per

year. However, he would like to knowwhat he would owe in
taxes if it sold in 10 years for $1,550,000.Scope of the
engagement: The Kemps have asked you to develop a
comprehensive financial plan that will help them meet their
goals andhelp them improve their financial position. The Kemps
want you to prepare a statement of net worth and review their
various insurance policiesfor proper coverage. They expressed
an interest in acquiring long-term care insurance and they want
you to recommend the type of policythey should purchase. They
also want you to review their investment portfolio and
recommend an asset allocation strategy that
maximizesinvestment performance, is diversified, and matches
their risk tolerance level. The couple is very concerned about
how the additional incomefrom the installment agreement will
be taxed. They would like you invest the 20% down payment
and future installment payments.Their only liquidity need is
$40,000 for a new car (this is net of any trade-in). Their current
marginal tax bracket is at the highest federal rate.In addition,
the couple has asked you to review and recommend estate and
gift tax minimization strategies. Lastly, the Kemps are
notconcerned about saving for retirement. However, they would
like you to evaluate how they can grow the 401(k) tax-free and
distribute themaximum amount left in the account to their two
children upon death.Goals: John and Mary have worked with
you to prioritize their goals in the following order.1) Reduce
any estate and gift tax liability and insure all estate planning
documents are in order.2) Review insurance contracts and
discuss the implications of purchasing a long-term care
policy.3) Establish a college funding plan for the three
grandchildren.4) Reduce personal income taxes.5) Based on
their risk tolerance level, recommend a diversified portfolio that
meets the Kemp's investment needs and expectations.Risk
tolerance: The Kemps are very willing to take investment risks.
Although the Kemps invest in the stock market using both
mutual fundsand individual stocks, they do not want you to
invest in tobacco stocks as both of their parents died from lung

cancer. They have asked youto reconcile the portfolio with their
ability and willingness to accept risk, and develop an
investment strategy and asset allocation that willachieve their
investment goals.Current and Future Economic
Information:Risk-free Rate3.00%Market Risk
Premium7.00%Market Standard Deviation11.00%Inflation
Rate2.85%Note - Interest rates and inflation look to increase in
both the short-term and long-term forecasts.Assets:FMVCash &
Checking Account - Joint Account5,000Savings Account - Joint
Account945,000Certificate of Deposits - John180,000Policy #1
John transferred to an ILIT in 2015Death Benefit of Term Life
Policy #1 - John4,000,000Policy #2 - Mary's PolicyDeath
Benefit of Universal Life Policy #2 - Mary400,000Cash Value
of Universal Life Policy #2 - Mary155,000Policy #2 -
Interpolated terminal cash reserve value175,000Individual Stock
Portfolio940,000(Details Provided in Attached Schedule)Mutual
Fund Portfolio2,907,682(Details Provided in Attached
Schedule)Installment Receivable-(10-year note - see terms
found above)401(k) Account - John1,054,540(Details Provided
in Investment Portfolios Tab)401(k) Account -
Mary105,000(Details Provided in Investment Portfolios
Tab)Annuity72,000(Details Provided in Attached Policy
Information)Primary Residence - FMV Land125,000(Owned as
Joint Tenants)Primary Residence - FMV
Building775,000(Owned as Joint Tenants)Cost Basis of Primary
Residence370,000(Owned as Joint Tenants)Vacation Home -
FMV Land200,000(Owned by John)Vacation Home - FMV
Building550,000(Owned by John)Cost Basis of Vacation Home-
(Owned by John)Auto - 2014 Chevy Automobile20,000(Owned
by Mary)Auto - 2015 Chevy SUV35,000(Owned by John)Boat -
2016 Sea Ray 24" Boat & Trailer95,000(Owned by
John)Furniture & Personal Property150,000(Owned as Joint
Tenants)1918 Inverted Jenny Stamp725,000(Owned by
John)Monthly Mortgage on Primary Residence-Original
Mortgage Amount-Interest Rate on Primary Residence
Mortgage0.00%Monthly Mortgage on Vacation Home626.96(20-

yr mortgage with 207 payments completed, 33 payments
remaining as of balance sheet date)Original Mortgage
Amount95,000Interest Rate on Vacation Home
Mortgage5.00%Current Credit Card Debt14,708(Owned by
Mary)Cost of administration, burial expense and state death
taxes for each spouse upon death:Administrative
expense$150,000Burial Expenses$25,000Wills:John's estate will
pass to his wife Mary, as primary beneficiary of his will. Mary
has executed a will that leaves her estate to John, asprimary
beneficiary. The second beneficiaries for both spouse's estates
are the children Steven and Robert, per stripes, in equal
proportions.Homeowners Policy - Primary ResidenceType of
PolicyHO-3Face
Amount$400,000Premium$1,825Deductible$500Liability$250,0
00Medical Payments$50,000 Per Person Per
OccurrenceAnniversary DateJuly
15thEndorsementsNoneHomeowners Policy - Vacation
HomeType of PolicyHO-3Face
Amount$460,000Premium$3,000Deductible$500Liability$175,0
00Medical Payments$50,000 Per Person Per
OccurrenceAnniversary DateJuly
15thEndorsementsNoneAutomobile PolicyPremium$3,300Bodily
Injury & Property Damage$200,000 / $600,000 /
$15,000Comprehensive Deductible$350Collision
Deductible$500Anniversary DateJuly 15thUmbrella
PolicyPremium$325Coverage$1,000,000Anniversary DateJuly
15thHealth Insurance PolicyPremium$2,435 Total yearly
premium for John & MaryCoverageMedicare Part BPolicy #1
was transferred to an ILIT in 2015InsuredJohn KempOwnerJohn
KempBeneficiaryMary KempContingent BeneficiarySteven and
Robert Kemp - 50% eachFace Amount$4,000,000Type of
PolicyTerm Insurance - Ends June 8, 2022Anniversary DateJune
09, 1992Total Contributions$375,000Annual
Premium$55,000Life Insurance - Policy #2InsuredMary
KempOwnerMary KempBeneficiaryJohn KempContingent
BeneficiarySteven and Robert Kemp - 50% eachFace

Amount$400,000Type of PolicyUniversal LifeAnniversary
DateJune 12, 1992Total Contributions$125,000Annual
Premium$5,000Annuity PolicyType of PolicyNon-Qualified
Single Premium Deferred Annuity (SPDA)Issue DateAugust 15,
2001OwnerJohn KempPrimary BeneficiaryMary
KempContingent BeneficiarySteven and Robert Kemp - 50%
eachOriginal Investment into SPDA$30,000Other
Additions$0Since Inception Basis Withdrawals$5,000
Kemp Balance SheetStatement of Financial PositionJohn and
Mary KempBalance Sheet / Statement of Financial WorthAs of
December 31, 2017Assets(1)Liabilities & Net Worth(2)Cash and
EquivalentsLiabilities (Current)JTCash & Checking$
5,000Credit Card Debt$ 14,708WJTSavings
Account945,000Current Portion - Primary Residence-
JTHCertificate of Deposits180,000Current Portion - Vacation
HomeHWCash Value of Universal Life Insurance #2-Total
Current Liabilities$ 14,708Total Cash and Equivalents$
1,130,000Invested AssetsLiabilities (Long-Term)JTStock
Portfolio$ 940,000Long-Term Portion - Primary Residence$ -
JTHMutual Fund Portfolio2,907,682Long-Term Portion -
Vacation HomeHHInstallment Receivable-Total Liabilities
Long-Term$ -H401(k) Account - John1,054,540W401(k)
Account - Mary105,000Total Liabilities$ 14,708HAnnuity
Policy (3)72,000Total Invested Assets$ 5,079,222Personal-Use
AssetsJTPrimary Residence (4)$ 900,000HVacation Home
(5)750,000HAuto - 2015 Chevy SUV35,000WAuto - 2014
Chevy Automobile20,000Net Worth$ 8,869,515JTFurniture &
Personal Property150,000H2016 Sea Ray 19" Boat95,000H1918
Inverted Jenny Stamp725,000Total Use Assets$
2,675,000Total Assets$ 8,884,222Total Liabilities & Net
Worth$ 8,884,222Notes to Financial Statements:(1) = All
assets are stated at fair market value(2) = Liabilities are stated
at principal only(3) = Primary Beneficiary Designation is
spouse. Contingent beneficiary is children in equal
percentages(4) = FMV of Land is $125,000. Cost basis is
$370,000(5) = FMV of Land is $200,000.2)Calculate the current

ratio as of 12/31/17 and explain any strengths or weaknesses of
this ratio:3)Explain any weakness pertaining to the amount of
cash and cash equivalents owned:John and Mary want to
contribute a portion of their inheritance to fund 529 plans for
each grandchild. What is the maximum amount theycan
contribute in the current year if they do not want to incur any
gift tax and they elect to gift split? Also, what tax forms are
required?4)What are the maximum 529 plan contributions that
the couple can make this year?5)What tax form must be filed
and what is the due date?6)Identify two advantages and two
disadvantages for making these 529 plan contributions.
Cash FlowJohn and Mary KempStatement of Cash FlowFor the
Period January 1 - December 31, 2017Cash InflowsSocial
Security Benefits - John14,400Social Security Benefits -
Mary9,000Installment Receivable - John-Investment Income -
Interest, Dividends and Capital Gains235,615Total Income$
259,015Cash OutflowsMortgage Payments (Principal & Interest)
- Residence$ -Mortgage Payments (Principal & Interest) -
Vacation Home-Real Estate Taxes - Residence14,335Real Estate
Taxes - Vacation Home7,225Food20,000Utilities, Cable,
Etc.6,200Auto Excise2,555Cell Phone2,000Home Maintenance
(Lawn, Snow, Etc.) & Repairs7,000Charity (Cash)35,000Out of
Pocket Medical7,500Personal Care4,400Clothing and
Cleaning4,100Homeowners Insurance Premiums - Primary
Residence-Homeowners Insurance Premiums - Vacation Home-
Auto Insurance Premiums-Umbrella Policy Premiums-Premiums
on John's Term Life Insurance Policy #1-Premiums on Mary's
Universal Life Insurance Policy #2-Vacation35,000Gas, Tolls,
Auto Repairs3,500Entertainment, Dining Out, Fun
Money8,500Medicare Part - B Insurance Premiums2,435Federal
& State Income Taxes135,000Federal & State Income
Taxes30,000Total Expenses$ 324,750Net Disposable Income$
(65,735)
Insurance AnalysisJohn and Mary KempInsurance AnalysisIf
the Winooski River floods causing $100,000 of damage to the
vacation home, what amount will the homeowners policy

cover?1)Homeowners Benefit Calculation:Assume that John
want to annuitize the annuity and is told that he can receive a
straight life annuity for $350 a month for life. If the
actuarialnumber of payments is 300, how much of the first $350
amount is taxable and how much is the return of basis?2)Tax
consequences of receiving the 1st annuity payment of
$350:Payment Received$350.00Less: Return of Basis- 0Taxable
Amount$350.003)The tax consequences of gifting the
annuity:Because the monthly straight amount is so low, John
would like to know the tax consequences and filing
requirements if he gifts this to hisgranddaughter Sara. Assume
that Mary will elect to gift spilt. John and Mary want you to
explain any generation skipping tax liability or taxconsequences
to this gift to Sara. For generation skipping transfer tax
purposes, what is the taxable amount of the gift? Please note,
donot assume this is being gifted when calculating the gross
estate.TotalJohnMaryTotal FMV at Time of Gift$0$0$0Less:
Gift Tax Exclusion - John---Less: Gift Tax Exclusion - Mary---
Net Taxable gift$0$0$04)What tax form is required and when is
it due?You recommend a long-term care policy for both John
and Mary. The policy is a comprehensive policy that allows
each spouse to sharethe other spouse's policy benefits. The
benefits will be paid for 3 years or up to $360,000, whichever
come first. The annual premiums are $4,750for John and $4,000
for Mary. Ignoring any AGI limitation, what amount of the
premium is allowed as a medical deduction if the
coupleitemizes their income taxes in 2017?5)Allowable Long-
Term Care Premium:JohnMaryTotalTotal Premium$0$0$0Less:
Allowed Amount-00Disallowable Premium Amount$0$0$0
Investment PortfoliosJohn and Mary KempSupplemental
Investment InformationAs of December 31, 2017Non-Qualified
AccountsStock Portfolio (a)DateSharesCostFMV as
ofStockAcquiredownedBasisTodayBetaA03/15/013,500$225,000
$7,0001.35B04/26/057,500$125,000$183,0000.95C07/26/061,00
0$110,000$195,0001.48D08/15/111,000$500,000$555,0001.03T
otals$960,000$940,000(a) = All dividends and capital gain

distributions are received in cash.Mutual Fund
PortfolioMutualCoefficient ofExpectedCostFMV as
ofFundDeterminationReturnBetaBasisTodayBalanced0.988.90%
0.82$750,000$1,054,540Growth0.9313.55%1.44$150,000$331,3
14Bond0.959.58%0.91$350,000$421,820International0.9415.73
%1.73$750,000$1,100,008Totals$2,000,000$2,907,682Qualified
AccountsJohn's 401(k) Account:MutualCoefficient
ofExpectedPre-TaxFMV as
ofFundDeterminationReturnBetaCost BasisTodayS&P 500
Index1.009.65%1$605,000$1,054,540Totals$605,000$1,054,540
Beneficiary is John's estate.Mary's 401(k)
Account:MutualCoefficient ofExpectedPre-TaxFMV as
ofFundDeterminationReturnBetaCost BasisToday2015
Fund0.988.90%0.82$50,000$105,000Totals$50,000$105,000Ben
eficiary is Mary's estate.1)Investment Policy Statement for John
and Mary KempObjectives:Return ObjectiveA total return
approach should be used to pursue the Kemp’s income
objectives as well as preservation of capital.Risk ToleranceThe
Kemp's are in the _____________ phase of the lifecycle. They
have an _______________ willingness to take on risk.Based on
their overall wealth position, they have an ______________
ability to take risk.Constraints:Time HorizonThe Kemp's have a
multistage time horizon. The first stage will last for
approximately 30 years or more in retirement.The second stage
will be to disburse any remaining assets to their children and
grandchildren.LiquidityThe current liquidity need is
______________________.Laws and RegulationsNo special
legal or regulatory issues are known at the present time.
However, the Kemps must review their wills and address
anyimmediate estate tax planning issues.TaxesTaxes are an area
of concern. The bulk of the income generated by the portfolio
will likely be taxed as ordinary income. Thecouple's total
(federal and state) marginal tax rate is approximately 44%.
Taxes are incorporated into their spending budget andtherefore
do not have to be taken into account in the discount rate for the
portfolio return requirement.Unique

Circumstances_________________________________________
_____________________________________________________
____________2)Calculate the Weighted Beta of Stock
Portfolio:WeightedWeightedStockFMVAverageBetaBetaA$7,00
00.74%00.0000B$183,00019.47%00.0000C$195,00020.74%00.0
000D$555,00059.04%00.0000$940,000100.00%0.00003)Calcula
te the CAPM of the Stock Portfolio:Assume that the stock
portfolio and mutual fund portfolio combined had a 10.25%
return and a standard deviation of 12.5%. What is the Sharpe
Ratio of the portfolioand how does this portfolio compare to the
Sharpe Ratio of the market portfolio?4)Calculate the Sharpe
Ratio of the Stock Portfolio and the Market:The Sharpe Ratio
for the portfolio is:The Sharpe Ratio for the market
is:Determine if the portfolio over- or underperformed compared
to the market portfolio.5)Portfolio Recommendations:
Tax AnalysisJohn and Mary KempTax AnalysisJohn would like
to know how the down payment and 1st installment for the sale
of his business will be treated for tax purposes. The business
wassold 3 weeks ago to his son for $6,000,000. The terms of the
agreement are: 20% down payment, 10-year, 4.5% note that will
start payingquarterly on May 1, 2017. The tax basis is
$1,450,000.1)Calculate the tax treatment realized on the down
payment:Down Payment$0Less: Return of Basis-Realized &
Recognized Long-Term Capital Gain$02)Calculate the tax
treatment realized on the 1st installment payment (round to the
nearest dollar):Installment Payment$0Less: Interest Income-
Net$0Less: Return of Basis-Realized & Recognized Long-Term
Capital Gain$0Without changing any calculations above,
assume that there is building that John owns that the purchaser
of the business does not want to buythat was originally
purchased for $350,000 and that the land was allocated as
$200,000 and the building as $150,000. If sold today, assume
theaccumulated depreciations is $83,7263)If the sales price of
the building is $1,000,000, what is the Section 1250 gain and
the Section 1231 gain that would be reported?Sales
Proceeds$1,000,000Less: Adjusted Basis$0Realized

Gain$1,000,000Section 1250 GainSection 1231 Gain4)What is
the tax rate that the Section 1250 gain be reported at?5)What is
the tax rate that the Section 1231 gain be reported at?6)Assume
that John sells the 1918 inverted Jenny stamp in 10 years for
$1,550,000 and there is a 15% commission and they are in
thehighest marginal tax bracket. What is the federal tax liability
on this sale?1918 Inverted Jenny Stamp$1,550,000Less: 15%
Commission$0Adjusted Sales Price$1,550,000Less: Cost
Basis$0Realized & Recognized Gain$1,550,000Tax
Rate0.00%Federal Tax Liability$0
Retirement AnalysisJohn and Mary KempRetirement
AnalysisAssume John cashed in his 401(k) when the FMV was
$1,054,540. He receives a check and deposits the proceeds a
few days later into his IRAaccount. What will the value be after
3 years if the account grows at a 3% guaranteed CD rate,
ignoring any required minimum distributions thatmay
apply?1)Future value of John's IRA account:2)How can John
and Mary grow the retirement assets tax-free?3)Based on the
facts in this case, for the year 2017, what is the maximum
amount that John and Mary can contribute to an IRA?
Also,would you recommend a Roth IRA, a deductible IRA or a
non-deductible IRA?
Estate CalculationsStatement of Financial PositionJohn and
Mary KempBalance Sheet / Statement of Financial WorthAs of
December 31, 2017Assets(1)Liabilities & Net Worth(2)Cash and
EquivalentsLiabilities (Current)JTCash & Checking5,000Credit
Card Debt$ 14,708WJTSavings Account945,000Current
Portion - Primary Residence-JTHCertificate of
Deposits180,000Current Portion - Vacation HomeHWCash
Value of Universal Life Insurance #2-Total Current Liabilities$
14,708Total Cash and Equivalents$ 1,130,000Invested
AssetsLiabilities (Long-Term)JTStock Portfolio$
940,000Long-Term Portion - Primary Residence$ -JTHMutual
Fund Portfolio2,907,682Long-Term Portion - Vacation
HomeHHInstallment Receivable-Total Liabilities Long-Term$
-H401(k) Account1,054,540W401(k) Account105,000Total

Liabilities$ 14,708HAnnuity Policy (3)72,000Total Invested
Assets$ 5,079,222Personal-Use AssetsJTPrimary Residence
(4)$ 900,000HVacation Home (5)750,000HAuto - Chevy
SUV35,000WAuto - Chevy Automobile20,000JTFurniture &
Personal Property150,000H2015 Sea Ray 24" Boat &
Trailer95,000Net Worth$ 8,869,515H1918 Inverted Jenny
Stamp725,000Total Use Assets$ 2,675,000Total Assets$
8,884,222Total Liabilities & Net Worth$ 8,884,222Notes to
Financial Statements:(1) = All assets are stated at fair market
value(2) = Liabilities are stated at principal only(3) = Primary
Beneficiary Designation is spouse. Contingent beneficiary is
children in equal percentages(4) = FMV of Land is $125,000.
Cost basis is $370,000(5) = FMV of Land is $200,000.1)The
Gross Estate, Probate Estate, the Marital Deduction and the
FMV of Wife's Inherited Asset Calculations for John:FMV of
Mary'sFMVGrossMaritalInheritedPropertyat
DODTitleProbateEstateDeductionAssetsLife Insurance$
4,000,000H----Cash & Checking5,000JT-
2,5002,5005,000Savings Account945,000JT-
472,500472,500945,000Certificate of Deposits180,000H-
180,000180,000180,000Stock Portfolio940,000JT-
470,000470,000-Mutual Fund Portfolio2,907,682H-
2,907,6822,907,6822,907,682Installment Receivable-H----
401(k) Account1,054,540H-1,054,5401,054,540-Annuity
Policy72,000H-72,00072,000-Primary Residence900,000JT-
450,000450,000-Vacation Home750,000H-
750,000750,000750,000Auto - Chevy SUV35,000H-
35,00035,00035,000Furniture & Personal Property150,000JT-
75,00075,000150,0002015 Sea Ray 24" Boat & Trailer95,000H-
95,00095,00095,0001918 Inverted Jenny Stamp725,000H----
Totals$ 12,759,222-6,564,2226,564,2225,067,6822)The
Adjusted Gross Estate, Tentative Tax Base and Federal Estate
Tax Liability Calculations for John:TaxableTaxTax Rate
ScheduleRateAmountLiabilityGross Estate$6,564,222Less:
Administration Expense-$0 - $10,00018%00Less: Burial
Expense-$10,000 - $20,00020%00Less: Casualty Losses-

$20,000 - $40,00022%00Less: Debts-$40,000 -
$60,00024%00Adjusted Gross Estate6,564,222$60,000 -
$80,00026%00Less: Marital Deduction(6,564,222)$80,000 -
$100,00028%00Less: Charitable Deduction-$100,000 -
$150,00030%00Taxable Estate-$150,000 - $250,00032%00Add:
Adjusted Taxable Gifts-$250,000 - $500,00034%00Tentative
Tax Base$0$500,000 - $750,00037%00$750,000 -
$1,000,00039%00Tentative Tax$0$1,000,000 +40%00Less: Gift
Tax Paid-Less: Unified Credit0TOTALS00Federal Estate Tax
Liability$03)Calculate the new basis for the following selected
assets for Mary on the assets received from John:FMVWife's
Newat DODBasisStock Portfolio--Installment Receivable--
401(k) Plan--Annuity Policy--Primary Residence--4)The Gross
Estate, Probate Estate, the Marital Deduction and the FMV of
Husband's Inherited Asset Calculations for Mary:FMV of
John'sFMVGrossMaritalInheritedPropertyat
DODTitleProbateEstateDeductionAssetsLife Insurance$
400,000W----Cash & Checking5,000JT-2,5002,5005,000Savings
Account945,000JT-472,500472,500945,000Cash Value of
Universal Life Insurance #2-W----Stock Portfolio940,000JT-
470,000470,000940,000401(k) Account105,000W-
105,000105,000-Primary Residence900,000JT-450,000450,000-
Auto - Chevy Automobile20,000W-
20,00020,00020,000Furniture & Personal Property150,000JT-
75,00075,000150,000Gross Estate$ 3,465,000-
1,595,0001,595,0002,060,0005)The Adjusted Gross Estate,
Tentative Tax Base and Federal Estate Tax Liability
Calculations for Mary:Gross Estate$1,595,000TaxableTaxLess:
Administration Expense-Tax Rate
ScheduleRateAmountLiabilityLess: Burial Expense-Less:
Casualty Losses-$0 - $10,00018%00Less: Debts-$10,000 -
$20,00020%00Adjusted Gross Estate1,595,000$20,000 -
$40,00022%00Less: Marital Deduction(1,595,000)$40,000 -
$60,00024%00Less: Charitable Deduction-$60,000 -
$80,00026%00Taxable Estate-$80,000 - $100,00028%00Add:
Adjusted Taxable Gifts$100,000 - $150,00030%00Tentative Tax

Base-$150,000 - $250,00032%00$250,000 -
$500,00034%00Tentative Tax-$500,000 - $750,00037%00Less:
Unified Credit-$750,000 - $1,000,00039%00Federal Estate Tax
Liability-$1,000,000 +40%00TOTALS006)FMVHusband'sat
DODNew BasisStock Portfolio--401(k) Plan--Primary
Residence--For questions 7 -9, highlight the answer or delete
the other three choices.7)John and Mary would like to fund a
trust that would receive an income tax deduction for charitable
gifting. They want the trust to provide a fixed paymentfor each
spouse for the rest of their lives with the remainder passing to
charity upon their deaths. Which one of the following gifting
techniques wouldaccomplish their goals?(a) - A charitable gift
annuity(b) - A charitable lead annuity trust(c) - A charitable
remainder annuity trust(d) - A grantor retained annuity
trust8)After meeting with an estate planning attorney, John has
decided to create two testamentary trust through his will. One
trust will distribute all incomeannually to Mary and give her the
right to appoint trust property during her lifetime or by will at
death. The other trust, funded with an exemptionequivalent
amount, directs the trustee to pay trust principal and income to
Mary for health, education, maintenance or support. Following
Mary's death,trust assets will pass to the sons per the terms of
the trust. What selection below will accomplish John's goals?(a)
- A QTIP trust and a power of appointment trust(b) - A bypass
trust and a QTIP trust(c) - A bypass trust and a power of
appointment trust(d) - A QTIP trust and an estate marital
trust9)John and Mary have a combined gross estate of over $30
million and are in need of estate tax minimization strategies.
Which estate planning techniquesshould the couple consider to
reduce the taxable amount of their estates?(a) - Marital
deductions and portability(b) - GRITs and preferred stock
recapitalization(c) - Bypass trusts and estate equalization(d) -
QDOT trusts and disclaimer provisions in wills

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