finance assignment

Integrated Case Project

This project will test your knowledge in the areas of insurance, retirement plans and estate planning. Please use what we’ve discussed during the semester to formulate your answers. Here are the facts of the case. At a minimum, please answer the questions found at the end of the case. If you’d like to expand your answers with additional projections or recommendations, feel free to do so. The case counts for 15 points of your final grade.

There is no minimum or maximum in terms of pages to complete this exercise. Again, you answer the below questions, great. You expand and want to add more recommendations, great. Some recommendations you may want to make may require additional information. State what you would recommend and what you would need to know to accurately recommend it.

• Wanda and Bill Murry have come to you seeking professional financial advice.

• They are married with twins o The twins are both 12 years of age. o Wanda is 48 years old. o Bill is 49.

• Wanda is a physician with her own practice.

o She has 5 other employees that work for her, all of whom are either assistants, nurses or admin.

o The business revenues are $2,000,000. o She pays herself a salary of $750,000. o The business has a profit at the end of the year of $500,000. o She has never installed a retirement plan for her employees.

• Bill is an engineer and works for an engineering company that he does not own.

o His gross salary is $200,000. o His employer has a 401(k) plan plus profit sharing.

 The 401(k) plan has both a before tax contribution option as well as a Roth 401(k) contribution option.

 He contributes 10% of his gross salary to the before tax option of the 401(k) plan.

 His employer matches him with 5% of his pay  Profit sharing contributions paid by his employer add an additional $20,000 to

his 401(k) plan.  His current balance in the plan is $3,000,000.

• Cash Flow and taxes

o Given their incomes, they pay a significant amount of federal taxes each year (ignore state taxes for this exercise)

 Federal tax = $475,000  They have no significant deductions against their income due to having paid off

their house o Each year, after paying all their bills and putting money aside for the children’s

estimated college costs, they have extra cash flow.  Their extra cash flow is $500,000 a year

• They invest in a brokerage account just in Bill’s name • The account is currently worth $10,000,000

• Balance Sheet as of today:

Assets

Cash/checking $ 2,000,000 in joint name

Brokerage account $10,000,000 in Bill’s name

Bill’s 401(k) $ 3,000,000 in Bill’s name

Education accounts $ 500,000 in Wanda’s name

House $ 5,000,000 in both names

Beach house $ 3,000,000 in Bill’s name in South Carolina (they live in a northern state – doesn’t matter where for this case)

Term Insurance As described below

Liabilities – none at this time, they have paid up all their debts

• Insurances o Wanda has $1,000,000 group term insurance thru her job o Bill has $1,000,000 group term insurance thru his job o Each of the group insurances name the other spouse as primary beneficiary, there is no

named contingent beneficiary

• They have not completed any estate planning documents

Given the above facts and focusing on insurance, retirement plans (and their tax implications) and estate plan issues, answer, at a very minimum, the following questions. Please be as detailed as possible with your answers. For example, just saying “they need a will” is not enough. Describe what happens if one or both die today without a will, what components should they include in the will to assure their assets pass on to the other probate free? What about the kids? What should the will address about the kids?

This is just one example to get you started. We have discussed all facets of what you could and should consider for this client throughout the semester. Even if you don’t plan to be an advisor, you could very well find yourself in this situation, personally, so what would you want to accomplish through planning, either on your own or with an advisor/other professionals?

Questions:

1) Do you feel they have enough life insurance? a. If so, why? b. If not, how much should they have and why? c. What are the impacts of their current beneficiary designations on their insurance? d. If you suggest additional insurance, how should it be owned?

i. Who should beneficiaries be? ii. What about contingent beneficiaries?

e. What type of insurance would you suggest? i. What are the pros and cons of each?

ii. If you suggest permanent, what type and why? f. What are the impacts of the insurance on their estate?

2) Is there any other type of insurance you would suggest to protect themselves (besides auto and house insurance, or malpractice insurance for Wanda)?

3) What would you recommend for Wanda as far as retirement plans? a. What impact will the retirement plan you suggest have on her future? b. What impact will the retirement plan you suggest have on her taxes today or tomorrow,

depending on the type of plan you suggest? c. What impact will the plan you suggest have on her business and employees?

4) What do you recommend for Bill’s retirement plan? a. What are the differences between a pre-tax contribution to his plan and a Roth 401(k)

contribution? b. What about beneficiaries of his current 401(k) plan?

i. The facts don’t mention anything, but what would you recommend? ii. Based on what you recommend above, what would happen to the 401(k) plan if

he died before retirement? 1. Who would it go to? 2. What are the tax implications?

5) What do you recommend regarding estate planning? a. What would happen today if one or both died?

i. What would be probated assets? ii. What would happen to the children?

b. Assume the following: i. Cash assets continue to grow at 1% rate of return plus what they are adding to

their cash assets ii. Brokerage account grows at 9% rate of return

iii. 401(k) grows at 9% rate of return iv. House values grow at 4% rate of return v. Education accounts are spent to pay for college

vi. They have purchased the life insurance you recommended above (if any) and based on how you suggested they own it, they still have it

vii. They both die in a car accident in 15 years

c. What would be the value of their estate based on the above assumptions and assuming the same estate tax thresholds as today (2022), what would the estate tax liability be assuming they did no current estate planning?