Question

Personal Data

Husband: Jason Dalton, age 51, Senior Executive for XYZ, Inc.

Wife: Andrea Dalton, age 48, Homemaker

Children: Ashley Dalton, age 14 (starting 9th grade); Carl Dalton, age 11 (starting 6th grade)

Jason’s parents: Father deceased, Mother, age 77, in nursing home

Andrea’s parents: Mother, age 68, and Father, age 69, in good health

Other Pertinent Information

Jason and Andrea have filed for divorce after 16 years of marriage

Jason and Andrea do not live in a community property state

Jason’s cost basis in XYZ stock is $150,000, which he has accumulated over many years

The Daltons are in a combined federal & state tax bracket of 41%

The Daltons state that they are very conservative, and their investment account is primarily (80%) fixed income investments

Jason’s 401(k) account is also allocated to approximately 80% in fixed-income investments; Jason maximizes his 401(k) contribution every year

Jason has a universal life policy purchased in 1989 with a death benefit of $500,000; Andrea is the beneficiary

Jason has group term insurance through XYZ with a death benefit of $1,050,000 (3x salary) that is entirely paid for by XYZ; Andrea is the beneficiary

Andrea has $250,000 of spousal group term life insurance through XYZ; Jason is the beneficiary

Jason and Andrea are beneficiaries of each other’s retirement accounts

Andrea is the beneficiary of Jason’s annuity (where Jason is the owner and annuitant), which has a cost
basis of $55,000

Jason has disability coverage paid for by his employer as a nontaxable fringe benefit, providing 60% of
monthly income up to $10,000/month; benefits are payable until 65 after a 90-day elimination period;
disability is defined as the inability to perform the substantial duties of your regular occupation

Jason receives adequate medical insurance coverage through XYZ for the family; the Daltons have adequate homeowner’s and automobile coverage

The primary residence mortgage is a 30-year fixed-rate loan, and was originated 6 years ago at 6.75%

The vacation home mortgage is a 5/1 ARM loan (payable over 30 years), and was originated 2 years ago
at 5.25%

Contributions of $500/month are being made to each of Ashley’s and Carl’s UTMA accounts

In the Daltons’ state of residence, minors receive full access to UTMA funds at age 18

Jason’s mother is utilizing her Social Security and survivorship pension income to cover nursing home costs, and will have very little other assets remaining

Andrea’s parents have nearly $1,000,000 in retirement assets that they are spending minimally, which will
ultimately be divided between Andrea and her sister

If Andrea’s parents were to be killed in a car accident tomorrow, and the divorce is still pending, how would Andrea’s inheritance be treated for purposes of the divorce?

a	Andrea would never have to split the assets with Jason, because she inherited them in the first place

b	Andrea will have to split the assets evenly with Jason, since she did not sign a pre-nuptial agreement to protect them

c	Andrea will not have to split the assets with Jason as long as she retains them in an account titled solely in her name

d

Andrea will have to split the assets evenly with Jason, since they were inherited before the divorce was completed

If the cost of college for Ashley is $15,000/year today, how much will a year of college cost her when she starts in 4 years if school expenses are inflating at 6% (to the nearest dollar)?

a

$17,842

b

$16,883

c

$18,937

d

$18,600

If the cost of college for Carl is $15,000/year today, how much will a year of college cost him when he starts in seven years if school expenses inflate at 6% for the next four years, and then at 5% for the remaining three years (to the nearest dollar)?

a

$22,554

b

$23,018

c

$21,922

d

$20,878

Carl’s total taxable income for 2015 is generated solely from his UTMA account, which created $1,500 of interest. Carl’s total federal income tax due for 2015 was approximately:

a

$55

b

$150

c​

$0

d

$495

Answer 1

Answers : -

1) b. Andrea will have to split the assets evenly with Jason, since she did not sign a pre-nuptial agreement to protect them.

As Andrea did not sign a pre-nuptial agreement so she have to split the assets with Jason.

2) c. $18,937.

$15,000 + 6% = $15,900 + 6% = $16,854 + 6% = $17,865 + 6% = $18,937.

3) c. $21,922

$15,000 + 6% = $15,900 + 6% = $16,854 + 6% = $17,865 + 6% = $18,937 + 5% = $19,833 + 5% = $20,878 + 5% = $21,922.

4) c. $0.

Upto $1,050 interest earning is tax free from UTMA account, the amount above $1,050 is taxable at child's tax rate only for earnings from UTMA. $1,500 - $1,050 = $450 is not taxable as for it to be taxable it has to be more than $2,100.

Note : - the kiddie tax rule is introduced in 2018.