ANSWERS TO CHAPTER QUESTIONS
Web Chapter C Special Circumstances Planning
1) Alimony is payment to support a former spouse. Childcare is payment to fund the
2) Remarriages tend to be more business-like. More often there are significant assets that
3) People seek a prenuptial to protect their separate assets and to make clear how assets will
be split in the event of separation. A prenuptial can be considered by some to be selfish
and cynical and detract from the relationship.
4) The advantages and disadvantages of being a non-married couple include:
a) Non-married couples advantages:
i) save in income taxes under some circumstances
5) A domestic partnership agreement presents the terms of agreement with the rights and
6) Planning for the affluent is generally more complex. Lower income people tend to be
interested in debt, savings and basic investing decisions. The affluent have tax issues,
estate planning, are more likely to engage in complex retirement planning and may
have a broader array of investments to select from. They tend to have more complex
professional relationships concerning financial issues as well.
7) A business owner has in essence two households—the business and the personal one.
The business one gets involved with salary, capital spending, tax and succession
8) With a buy-sell agreement the terms of sale are established in contract form. Life
9) Stock Options. Decisions are more complex because they tend to be more available to
corporate managers and are generally a greater percentage of total compensation.
10) A special needs trust is one provided for people who have particular problems, often
11) Support is for dependents who make no or modest incomes due to disabilities.
Supplemental Security Income (SSI) provides modest income for the basics of living.
12) Elder care planning concerns helping people who cannot do certain activities by
themselves. Three typical ones are:
a) Cash flow planning – paying of bills
13) Once a person has reached the elder-care stage investment management should
become more conservative. A decline in markets can have a significant impact on
how much they can spend each year. A larger concentration in bonds is generally
called for.
14) Methods to persuade reluctant parents to move to an assisted-living facility may
include:
15) Making yourself poor by gifting to others can provide a larger sum to your heirs.
However, it is getting harder to do so and provide aid as the transfer of assets needs to
16) Some of the steps involved in terminal illness planning are to:
a) Update the will.
b) Think about establishing a power of attorney and health care proxy.
c) Consider providing a trust with trustee to manage assets when incapacitated and
17) Transferring investments with large gains to spouse having terminal illness at least
one year prior to death to obtain a step-up in basis thereby raising “cost” for sale
18) Tracy and her father should:
a) Review the will
b) Consider whether assets should be placed in a joint name
19) Gifts to charities where you can see initial results of donation and gifts $14,000 single
or $28,000 joint are useful. Gifts of life insurance and that of appreciated property to
ANSWERS TO CHAPTER PROBLEMS
Web Chapter C Special Circumstances Planning
C1) Alexandra, who didn’t work, had no money in her name. Her husband had $2
million that he had accumulated after marriage and made $250,000 a year. She is
getting divorced and will start to work soon as a sales assistant. What is a possible
divorce scenario and amount of money she may receive? Might she receive a
portion of his salary?
Solution:
The $2 million that Alexandra’s husband had accumulated after marriage are considered
C2) Allegra inherited $500,000. She wants to know if she should change her risk
tolerance. What is your recommendation?
Solution:
Depending on Allegra’s financial situation before the inheritance of $500,000 she might
C3) John has 95 percent of his assets in his company’s stock and stock options. He
says the stock is cheap and will have above-average growth. What do you think
he should do? Why?
Solution:
A business is exposed to many risks. John’s portfolio is dominated by his company’s
Answers to CFP® Questions
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