Tom and Mary are each age 36 and have three children, ages 4, 6, and 9. They are concerned about funding education. Also they are concerned about private high school education since the town they live in has a very poor school system. They have set up an UGMA account for each child.

Mary works part time and earns gross about $45,000. Tom works for a large company and makes gross $200,000 per year. The company has a 401K plan and he contributes the maximum amount of $19,500 per year and his company match is $6,000 more (so a total of $25,500). But Tom does not doany after tax contributions to the plan.

Assume you are a financial advisor and Mary and Tom come to see you with the following questions/issues:

1. How much would we need to put aside each month to fund all three kids in private college?

(use the link below for a calculator) Assume current cost private at $75,000 for one year with $50,000 being tuition and $25,000 room and board; Assume a 7% return on investments and you decide how much college cost inflation rate will be. Use any calculators you want but this link below may help! Please provide a copy of your calculation.

http://www.dinkytown.net/java/CollegeSavings.html(Links to an external site.)

2. Mary and Tom ask about what type of vehicle to fund? And some advice on how to fund for private high school - should they use UGMA, 529 plan, or some other vehicle? And should they keep the UGMA accounts. (each account has $12,000 and is generating about $500 per year in dividend income and the accounts could be liquidated with virtually no capital gains tax due.)
4. The grandparents on Mary's side are very wealthy. Any advantage to the grandparents funding a 529 plan? And how much could they fund at once? And who should own the plan?
6. Finally they ask about the financial aid process. Tom's Dad wants to set up a brokerage account with $120,000 and put the account into the name of the oldest child? Is this a good idea? Is there a better strategy?

Case 2 The Wealthy Business Owner Assume Tax Year 2021

Janet and Peter are business owners of a local company. The company is set up as an S corporation and they each own 50% of the stock. The company is not traded but has an estimated value of $20 million. They have accumulated significant assets as follows:

Primary residence with equity value of $3.0 million owned as tenants by the entirety

Vacation home with equity value of $1.2 (which they sometimes rent out) owned in Peter's name

Regular brokerage account in joint names worth $8 million

Collectibles such as art work worth $90,000

Two expensive Tesla's each worth $95,000

They have one son, Sam, who is age 26. Janet and Peter are each age 64.

Peter is a lousy driver; he has a record of speeding tickets. Both Janet and Peter work in the business. Sam still lives at home and uses vehicles owned by his parents.

Questions:

2. They own 2 autos each with standard liability coverage of 100/300. But they don't have any additional liability coverage. What do you recommend?
4. Should the company continue to be an S corp? Would some other type of entity make more sense? And should the vacation home remain in Peter's name?
6. Janet and Peter have an expensive lifestyle. They want to retire in 5 years and are thinking about cash flow in retirement. Based on current lifestyle they will need cash flow of $1.4 million in retirement. Assume this cash flow is after-tax and that the business will be sold and will net after tax $15 million which will be invested. Is $1.4 million reasonable? Why or why not?
8. For estate planning assume a total net worth is $35 million (this includes personal property not listed above in the facts). They have a basic Will, Durable Power of Attorney, and Health Care Proxy. What advanced strategies should they consider? They have no life insurance.
10. Anything else you can suggest relative to the brokerage account? Should it be in joint names?
12. Any way they can protect against long term care expenses?

Answer rating: 100% (QA)

ANSWER For Tom and Mary College Funding Use the provided college savings calculator to determine the monthly contribution needed to fund private colle... View the full answer