Chapter 14: Professional Financial Planning

Question 1

3 Sections or stages of financial planning for humans

Answer 1

Early adult years
Middle adult years
Later adult years

Question 2

Early adult years

Answer 2

saving for families should parents die prematurely, child education or paying off mortgages

Question 3

Middle Adult Years

Answer 3

Saving for retirement

Question 4

Later Adult Year

Answer 4

Estate planning, wills , transfer of property and wealth

Question 5

Professional Financial Planning Steps (5)

Answer 5

1. Motivate and Educate Clients
2. Collect Information
3. Develop Goals
4. Implement Plans
5. Review & Update Plans

Question 6

Motivate and Educate Clients Stage

Answer 6

overcome tendencies to avoid completing financial plan

Question 7

3 tendencies to avoid financial planning

Answer 7

1. lack of knowledge
2. not knowing where to start
3. not understanding importance

Question 8

Collect Information Stage

Answer 8

collect info about client etc net worth, cash flow, develop cash budget and spendings, house hold income from parents, family needs

Question 9

cash budget(3)

Answer 9

heart of financial plan
plan development from tax returns and book records
estimate future needs

Question 10

adjusted cost basis (4)

Answer 10

net cash outflow for purchased property -> purchase price and expense -> client attitude towards risk -> risk return trade off

Question 11

Develop goals stage

Answer 11

short, middle, long term,
consider all sources of wealth and expenditure (rank)

Question 12

Saving plan

Answer 12

fund expenses and obtain financial goals= investment strategy

Question 13

Asset Allocation Plan:

Answer 13

What % of assets are held in low vs high risk investments

Question 14

Implement plan stage

Answer 14

implement first budget and plan

Question 15

Review and Update plans

Answer 15

plans change etc jobs, kids, raises bonuses, divorce, challenges

Question 16

Early Adult Years

Answer 16

calculating life insurance needs for family

Question 17

Period Characteristics: Early

Answer 17

first job, marriage, children, accumulation of debt

Question 18

Needs based (Life Insurance) purchase

Answer 18

life insurance purchased in amount equal to difference between assets required to complete financial plan and assets available

Question 19

Permanent policies or cash value life insurance

Answer 19

life insurance policy with savings feature, premiums affordable later

Question 20

Permanent needs

Answer 20

not function of time as exists at all ages etc burial fund, estate planning, court, attorney

Question 21

Term

Answer 21

not a long period of time and no savings element

Question 22

Temporary need

Answer 22

projected end, meet for portion of time

Question 23

Assets available to meet needs (4)

Answer 23

social security, employee group life, home equity, investment savings

Question 24

Tax advantage funding

Answer 24

produces more funds than non-tax

Question 25

529 Plan

Answer 25

contributor owns account, owner selects investment strategies and can make changes after one year

Question 26

Middle Adult Years

Answer 26

Retirement

Question 27

Period Characteristics: Middle

Answer 27

children independent, mortgages repaid, families accumulating savings

Question 28

what is the shift during the stage

Answer 28

from premature death to retirement, participate in social security, employee pension

Question 29

Retirement Planning and Problem to solve steps (6)

Answer 29

1. Estimate length of life & health status 2. forecast amount and sources of pre and post retirement income 3. predict amount and type of retirement expenses 4. age when retiring 5. gauge impact of inflation post retirement 6. anticipate possibility of dependent child, parent or both

Question 30

Late Adult Years

Answer 30

transferring wealth to lower generations etc estate planning

Question 31

estate planning

Answer 31

transfer of wealth, logical and economic transfer of asset with owners desires

Question 32

Will

Answer 32

legal document in which a person directs the disposal of assets at death

Question 33

probate

Answer 33

name for legal (court supervised) process of transferring property at a person's death

Question 34

intestate

Answer 34

person dies without a will

Question 35

trust

Answer 35

legal arrangement allowing person, trustee, to manage property for the benefit of another person, beneficiary

Question 36

Life Insurance Trust

Answer 36

What attorneys call a trust funded with life insurance proceeds

Question 37

what is the cash in life insurance trust used for

Answer 37

purchase assets from the estate at set prices

Question 38

survivor life insurance and when is beneficiary paid

Answer 38

insure two loves under one contract, beneficiary paid after second death

Question 39

3 reason for business to purchase life insurance

Answer 39

1. benefits for employees 2. protect firm through use of life insurance 3. Aid in business transfer of ownership

Question 40

benefits for employee

Answer 40

group life

Question 41

Key employee life insurance and who is owner , beneficiary and insured

Answer 41

protect a firm from the lose of a important individual etc president or ceo, and the resulting financial problems beneficiary and owner is business and insured is key individual

Question 42

split dollar life insurance

Answer 42

employer and employee part of premium for insurance policy with savings feature

Question 43

buy and sell agreement

Answer 43

used to transfer ownership when owner of business dies

Question 44

2 forms of buy and sell agreement

Answer 44

cross purchase plan or entity plan

Question 45

cross purchase plan

Answer 45

each partner (shareholder) can purchase life insurance on every other partner (shareholder)

Question 46

Entity plan

Answer 46

partnership (corporation) can purchase insurance on each parter (shareholder) -> smaller number of policies