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Presentation/PPT
27/08/2022
Jill Thompson
Personal Data
Client: Jill Thompson, age 50, Accountant, divorced
Children: Dorothy, age 14
Jill’s parents: Mother, age 78, terminally ill; father, deceased
Financial Data
Primary residence (Jill’s)…………………………………………………………………..$500,000
Mortgage on primary residence…………………………………………………… .$305,000
Cash account (Jill)…………………………………………………………………………………$6,000
Cash account (Mother)………………………………………………………………………..$1,000
Jill’s 401(k)…………………………………………………………………………………… ..$125,000
Jill’s IRA………………………………………………………………………………………………$50,000
Jill’s investment account…………………………………………………………………….$75,000
Jill’s automobile…………………………………………………………………………………$24,000
Jill’s credit card debt…………………………………………………………………………..$18,000
Income/Expense Data
Jill’s income…………………………………………………………………………………………$125,000
Jill’s investment income………………………………………………………………………….$6,500
Child Support for Dorothy (monthly)……………………………………………………..$1,000
Family monthly expenses (excluding mortgage & taxes)…………………………$7,500
Other Pertinent Information
· Jill has been divorced from Dorothy’s father for five years.
· Jill’s mother is in a nursing home and is terminally ill. She is expected to live only 2-4 months. She has no remaining assets besides her small bank account and is currently on Medicaid.
· Jill owns a $500,000 term life insurance policy on her mother (it was given to Jill six years ago by her mother) and she has named herself as beneficiary.
· Jill has a will that leaves everything outright to Dorothy. She has a power-of-attorney and health care power-of-attorney that names her mother as attorney-in-fact.
· Jill’s mother has a will that leaves everything to Jill and a power-of-attorney and health care power-of-attorney that names Jill as attorney-in-fact with no successor.
· Jill states that she is extremely conservative and her investment account is almost entirely invested in fixed income investments.
· Jill contributes $12,000 each year to her 401(k). She wants to contribute the maximum.
· Dorothy is the beneficiary of Jill’s 401(k).
· Jill has a $500,000 20-year term life insurance that she took out three years ago; Dorothy is the beneficiary.
· Jill has a disability insurance policy paid by her employer that provides 60% of her income up to a maximum of $7,000/month; the policy has a 90-day elimination period and provides benefits until age 67; the policy provides benefits if Jill is unable to perform the duties of any occupation for which she is reasonably qualified by education, training, and experience.
· The primary residence mortgage is a 30-year fixed loan and was taken out 1 year ago at 4.75%. $100,000 of these proceeds were part of a cash-out refinance that was spent on high quality medical treatment for her mother last year while Jill was fully supporting her mother.
· Jill is currently paying a 20.99% annual interest rate on her credit card debt.
Goals
1. Provide an adequate quality of life for Jill’s mother in her final months.
2. Begin developing a college fund for Dorothy.
3. Begin planning for future retirement.
Economic Environment
The economy has been in recession for several years. Current inflation, as measured by the CPI, is at 1.1%. 90-day T-bill/money market rates are currently at 1%. Long-term government bonds are yielding 3%. Economic growth was 2.5% last year and unemployment is at 5.2%. Interest rates are expected to be flat in the near future. Economic growth is expected to improve in the coming years.
Questions
1. What is the tax treatment of the $100,000 of payments for Jill’s mother’s medical expenses last year? Select your response and indicate your reasons for your decision. Justify your answer.
a) Deductible as medical expenses on Jill’s mother’s return, subject to a 7.5% of AGI floor
b) Deductible as medical expenses on Jill’s return, subject to a 7.5% of AGI floor
c) Deductible as medical expenses on Jill’s return, subject to a10% of AGI floor
d) Not deductible at all because Jill’s mother did not pay for her own coverage
The writer is very fast, professional and responded to the review request fast also. Thank you.
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