Discussion Case 1: This case is available in MyFinanceLab.
Lee and Marta Howard are in their early 70s. Recently, they have grown concerned about pro¬bate and estate taxes. They calculated that this year they will have a combined net worth of $6,100,000. In addition, Lee owns a $500,000 whole life insurance policy on his life. Marta is the beneficiary. They are also considering giving their recently divorced son $100,000 to start a financial counseling practice. He is their only child, but he has two children of his own. One, age 25, is disabled, lives in a group home, and receives Medicaid. The other is a freshman in college. Although a bit ashamed to admit as much, the Howards do not have a will and have made no plans for their estate. Their overriding fear is that they will outlive their money.
Questions
1. Should Lee and Marta be concerned about probate? Why or why not?
2. What should Lee and Marta include in a letter of last instructions?
3. Help the Howards understand the differences between revocable and irrevocable living trusts by listing the advantages and disadvantages of both.
4. How might the Howards use trusts to benefit their grandchildren? How might these strate¬gies affect their estate taxes?
5. What options does Lee have for gifting his whole life insurance policy, either to an indi¬vidual or to a charity? What are the consequences for his estate tax planning?
6. Would you recommend that Lee and Marta write their own will, or should they hire an attorney? Explain your answer.
Discussion Case 1: This case is available in MyFinanceLab.
Your sister Mindy and her boyfriend Doug recently announced plans to be married after grad-uation in May. Although you are fond of them both and want their relationship to succeed, you are concerned about their financial future. Neither Mindy nor Doug completed a personal finance course while in college. Mindy is a spender who has known few limits on her wants since she was a teenager. Doug, on the other hand, has worked, saved, and invested since he was a teenager to help provide for college costs. He will complete college with approximately 512,600 in student loans. Their income in their first year out of college will total $90,000, due in large part to Doug's choice of major and practical work experience during college. Mindy, who admits having no financial skill or interest is content to let Doug handle all those matters, since he seems to be good at it and will likely earn more than she does.
Questions
1. The discussion of money issues is the first of a four-step process to help couples success-fully manage their finances. The process might be summarized as (a) talk, (b) track, (c) plan and act and (d) review and revise. Describe the steps and the objective of each.
2. Doug and Mindy, similar to many young couples, are combining two life events: getting started and getting married. Integrate the planning steps and create a new list to ensure that Doug and Mindy don't overlook anything.
3. Explain to Mindy why it is important that she become informed about and involved in her financial future-regardless of how well Doug fulfills the role he hopes to have of husband and provider.
4. Mindy and Doug's ideal is for Mindy to work for a few years and then be a "stay-at-home mom." If she invested $4,000 for 8 consecutive years in a Roth IRA that earned 9 percent annually, how much would she have after 35 years? (Note: The first 8 years are an annu-ity, after which the balance will continue to grow, without deposits, for the remaining 27 years.)
5. Identify three essential actions that Mindy should take to ensure her financial future.
6. Help Mindy and Doug consider the issues of joint or separate checking accounts and credit cards. Why are these important issues to resolve prior to marriage?