Case Study

Question 1

How to calculate Emergency Funds for Clients?

Answer 1

First Step: is it 3 (both working) months or 6 (one working) months or expenses.

Second Step: Subtract income taxes, FICA (if SE) and savings/investments on cash flow statement

Third Step: Identify which assets on balance sheet are Emergency Fund. Use Cash / Cash Equivalents, and CD’s (no penalty to sell) and DO NOT use CV of life insurance.

Fourth Step: Back out one month of expenses in Checking account and use the rest as available for emergency funds.

(1) three to six months of expenses (minus income taxes, FICA, savings/investments)
(2) use cash/cash equivalents (savings, money market funds, short-term CDs—where no penalty is involved)
(3) don’t normally use cash value of insurance
(4) reserve one month of expenses in checking before including the remainder as part of an emergency fund amount

Question 2

How to calculate Probate Estate and Gross Estate?

Answer 2

Create a table that shows Asset Value / Title (Ownership) / Deceased Person’s Value / Beneficiary Name / Probate Estate / Gross Estate

Then start adding and subtracting to get PE and GE and AGE

We do not include the cash value of life insurance in the probate or the gross estate. Only the Death benefit. If the client had a loan against the cash value, then we subtract that amount from the death benefit to the beneficiaries.