143 Market StreetRoanoke, VA 24011

(540) 703 – 0571

December 2nd, 2015

A Comprehensive Financial Plan Prepared for Tyler and Mia Bedo by:

Brandt DawsonEmily Purdon

Megan RobinsonJake Seraphin

Summit Financial Advisors

Confidentiality NoticeThe information in this plan is confidential to the recipient(s) and should not be disclosed to any other person. If the reader of this message is not the intended recipient, you are hereby

notified that any form of modification, reproduction, distribution, or publication of this material is strictly prohibited.

Summit Financial Advisors143 Market Street

Roanoke, VA 24011(540) 703 – 0571

Mr. and Mrs. Tyler Bedo103 Buckeye LaneRadford, VA 24141

November 9, 2015

Dear Tyler and Mia:

We would like to welcome you to Summit Financial Advisors. Understanding your financial needs, goals and values is of utmost importance to a successful advisor-client relationship. Our advisors and clients commit to honest communication. The privacy of our clients’ personal and financial information is of utmost importance. We take numerous precautions to ensure confidentiality. Our firm’s Privacy Statement can be found on page 4 and outlines our firm’s policies to protect your information.

Financial planning is a process not a transaction. We will develop customized recommendations based on your personal and financial information. Then, we will inform you of feasible alternatives. These alternatives will address cost as well as potential short-term and long-term effects. After discussing your thoughts regarding the alternatives, we will utilize your feedback to choose the most appropriate recommendation. While our advisors will make recommendations that we believe to be in your best interest, you will make the final decisions regarding implementation.

Original plan recommendations rarely remain constant over time. Between changes in your personal life and economic fluctuations, your goals or progress toward meeting your goals may change. We hold quarterly meetings to review your financial plan. These periodic reviews will allow our advisors to track your progress and implement any necessary changes. At a minimum, we will meet with you annually. In the case of a major life event, we ask you to schedule a meeting to discuss the financial implications. We encourage you to be open about changes in your personal and financial goals, ask questions, and express any concerns during these meetings.

A majority of communication is done by e-mail, but if you have an alternative preference please let us know.

We look forward to being your trusted advisors through all stages of your life.

Sincerely, Brandt Dawson

Emily Purdon

Megan Robinson

Jake Seraphin

The Partners of Summit Financial Advisors

Mr. and Mrs. Tyler Bedo103 Buckeye LaneRadford, VA 24141

November 9, 2015

Dear Tyler and Mia:

Re: Financial Planning Engagement

We, at Summit Financial Advisors, welcome the opportunity to work with you, and appreciate the opportunity to help you meet your financial goals and dreams. This letter confirms the terms of the financial services we will provide, per our recent conversation. Any changes to the scope or term of our engagement will be documented in writing and mutually agreed upon by all parties.

We will follow these steps to create a comprehensive, tailored financial plan is prepared: 1. Establish and define the relationship with the client2. Gather necessary personal and financial information pertaining to the client 3. Analyze and evaluate the client’s current financial status4. Develop and present the financial planning recommendations 5. Implement the financial planning recommendations6. Monitor plan effectiveness and make necessary modifications

We will gather personal and financial information as provided by you. This information will be both qualitative and quantitative. The qualitative aspects will revolve around your objectives and goals. The quantitative data will include, but is not limited to, bank statements, brokerage statements, insurance documents and your most recent tax return information. We will make this task easier by providing information forms and clarifying collected data with you. Due to the ever-changing state of financial planning, we ask that you inform us when changes to your finances or goals occur. Keeping us appraised will allows us to adjust the plan accordingly and more accurately make recommendations.

Once all relevant information is gathered, we will analyze your current financial situation. Our analysis of your financial information will result in a Statement of Cash Flows, a Statement of Financial Position and diagnostic financial ratios. In addition to the cash flow analysis, we will deliver recommendations in income tax planning, risk management, education, investments, retirement and estate planning.

You are under no obligation to follow recommendations, either completely or in part. Please understand that recommendations may be integrated; carrying out a recommendation in isolation may not meet your overall objectives.

To implement any planned changes, we suggest speaking with the qualified licensed professional. We are not attorneys and are neither authorized nor qualified to provide legal advice or to prepare legal documents for you. We are not accountants and are not

authorized to prepare or amend the filing of personal income, gift or estate tax returns for you. We may complete some documents for the function of your comprehensive plan; however, they are not to be viewed as prepared tax returns for the purpose of filing. We are not insurance professionals; however, we will review your current insurance coverage and make recommendations that we believe will minimize your risk exposure. You should consult your own professionals for these services.

Regarding follow-through, our firm offers Service Assistance. This involves arranging meetings with and delivering documents to any other advisors or professionals with whom you choose to engage with for plan implementation. If you do not have engagements with other professionals, such as attorneys, accountants, and insurance agents, we will gladly provide you with the contact information of trusted professionals we work with. You are not required to work with our recommended professionals. We do not accept referral fees or incentives from professionals or firms. These professionals have been selected because we are confident they will act in your best interest during the implementation of your plan.

We take special care to protect client confidentiality. No information will be disclosed to other parties without your specific request and written consent, or as required by law.

Due to the complexities of the financial services industry, we feel it important that you have a complete understanding of our firm’s fee structure. As a fee-only planning firm we neither receive nor pay commissions for any products recommended or referrals provided. Our firm’s transparent structure allows for complete objectivity in the financial planning process.

The cost of developing and delivering your initial financial plan is $3,000; however, as an ongoing asset management client you will not pay for updates to your financial plan. Instead we charge an annual fee for our services based on a percentage of your assets under management (AUM) with our firm. The AUM fee structure is as follows:

AUM Fee$1 – $500,000 1.50%$500,000 – $1,000,000 1.25%$1,000,000 – $3,000,000 1.00%$3,000,000 – $5,000,000 0.75%$5,000,000 or more 0.50%

The acceptance of this contract signifies the beginning of an ongoing, professional relationship. Your financial plan will be reviewed quarterly and we will be contact with you at these times. At a minimum, we will meet with you on an annual basis.

Either party may terminate this agreement by notifying the other party in writing. If you cancel within five days of acceptance, you will receive a full refund. Thereafter, any fees that you have paid in advance will be charged for the time and effort we have devoted until then and the balance will be refunded.

Summit Financial Advisors143 Market Street

Roanoke, VA 24011(540) 703 – 0571

If you understand and agree to the terms set forth in this document, please sign in the space provided below.

Sincerely,

Brandt Dawson

Emily Purdon

Megan Robinson

Jake Seraphin

The Partners of Summit Financial Advisors

Agreed and Accepted By:

Tyler Bedo 11/9/2015Tyler Bedo Date

Mia Bedo 11/9/2015Mia Bedo Date

Table of ContentsPart I: Client Packet 1

Why Summit Financial Advisors? 2 Ethics Statement 3Privacy Statements 4 Investment Policy Statement 5Client Profile 9Summary of Goals and Assumptions 10Executive Summary 12

Part II: Financial Analysis 15Section A: Financial Statements 16Section B: Financial Ratios 20Section C: Emergency Fund 26Section D: Credit Card Debt 28Section E: Mortgage Refinance 31

Part III: Tax Analysis 33Part IV: Insurance Analysis 39

Section A: Life Insurance 40Section B: Health Insurance 45Section C: Disability Insurance 48Section D: Automobile Insurance 51Section E: Homeowner’s Insurance 55Section F: Umbrella Insurance 59Section G: Long-Term Care Insurance 61

Part V: Education Analysis 62Part VI: Investment Analysis 70

Section A: Non-Qualified Investments 71Section B: Qualified Investments 75

Part VII: Retirement Analysis 78Part VIII: Estate Analysis 89Part IX: Special Needs Analyses 99

Section A: Family Vacations 100Section B: After-School and Summer Child Care 101Section C: Art Gallery 102Section D: Home Addition 103

Part X: Implementation & Monitoring 104

Part I: Client PacketPart II: Financial Analysis

Part III: Tax AnalysisPart IV: Insurance AnalysisPart V: Education Analysis

Part VI: Investment AnalysisPart VII: Retirement Analysis

Part VIII: Estate AnalysisPart IX: Special Needs Analyses

Part X: Implementation & Monitoring

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Why Summit Financial Advisors?

The summit of the mountain is the highest point achievable while still maintaining contact with the ground. It inspires awe, stirs aspirations and prompts effort. It represents the target and goal. It provides a sense of accomplishment when attained. We hope to bring the ideology of the summit to our workplace and clients. We want to stir aspirations, bring goals into focus, but while remaining constantly grounded in our fiduciary responsibility and the highest standards of the financial planning profession. As you climb to reach the summit of your life, our advisors will provide guidance, encouragement and support every step of the way.

Firm Description

Summit Financial Advisors is a fee-only holistic financial planning firm located in Roanoke, Virginia. We provide comprehensive personal financial planning to individuals and families. The goal of our financial planning process is to appropriately identify and prioritize your objectives, without overwhelming you with data collection and discovery. Our firm’s areas of focus include, but are not limited to, income tax planning, risk management analysis, investments, retirement planning, and estate planning.

Mission Statement

To provide our clients with the financial knowledge and advice necessary to achieve their life goals while maintaining a professional relationship based on unyielding trust, integrity, and personalized service.

Vision Statement

To be regarded throughout the New River Valley as a reputable firm committed to providing an effective and enjoyable financial planning experience.

Core Values

Core values are not descriptions of the work we do to accomplish our mission as financial planners; instead, these values are the basic elements of how we go about our work. In an ever-changing world, our firm’s core values remain consistent.

The values that define our passion and dictate our action include: Integrity: We expect our associates to maintain high ethical standards in

everything they do, both in their work and in their personal lives. Client Focus: We serve our clients through honesty, clarity, and brevity. We are

confident that if we serve our clients well, our own success will follow. Accountability: We encourage our advisors to take responsibility for their work

and feel empowered by their decision-making in order to achieve effective collaboration and transparency.

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Ethics Statement

As associates of Summit Financial Advisors, we hold ourselves to the standards of the Certified Financial Planner Board’s Code of Ethics. These guiding principles establish the highest standards expected of CFP® (Certified Financial Planner) professionals.

Principle 1 – Integrity: Provide professional services with integrity.

Integrity demands honesty and candor which must not be subordinated to personal gain and advantage. Certificants are placed in positions of trust by clients, and the ultimate source of that trust is the certificant’s personal integrity. Allowance can be made for innocent error and legitimate differences of opinion, but integrity cannot co-exist with deceit or subordination of one’s principles.

Principle 2 – Objectivity: Provide professional services objectively.

Objectivity requires intellectual honesty and impartiality. Regardless of the particular service rendered or the capacity in which a certificant functions, certificants should protect the integrity of their work, maintain objectivity and avoid subordination of their judgment.

Principle 3 – Competence: Maintain the knowledge and skill necessary to provide professional services competently.

Competence means attaining and maintaining an adequate level of knowledge and skill, and application of that knowledge and skill in providing services to clients. Competence also includes the wisdom to recognize the limitations of that knowledge and when consultation with other professionals is appropriate or referral to other professionals necessary. Certificants make a continuing commitment to learning and professional improvement.

Principle 4 – Fairness: Be fair and reasonable in all professional relationships. Disclose conflicts of interest.

Fairness requires impartiality, intellectual honesty and disclosure of material conflicts of interest. It involves a subordination of one’s own feelings, prejudices and desires so as to achieve a proper balance of conflicting interests. Fairness is treating others in the same fashion that you would want to be treated.

Principle 5 – Confidentiality: Protect the confidentiality of all client information.

Confidentiality means ensuring that information is accessible only to those authorized to have access. A relationship of trust and confidence with the client can only be built upon the understanding that the client’s information will remain confidential.

Principle 6 – Professionalism: Act in a manner that demonstrates exemplary professional conduct.

Professionalism requires behaving with dignity and courtesy to clients, fellow professionals, and others in business-related activities. Certificants cooperate with fellow certificants to enhance and maintain the profession’s public image and improve the quality of services.

Principle 7 – Diligence: Provide professional services diligently.

Diligence is the provision of services in a reasonably prompt and thorough manner, including the proper planning for the rendering of professional services.

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Privacy Statement

We promise to maintain your trust by protecting your personal and financial information with the highest level of security. In order to guarantee the safety of financial documents our firm maintains a secure computer network. Confidentially is imperative to our firm. Our advisors strive to make sure clients feel comfortable with the environment in which to share private information about themselves, their family, and their goals.

We ensure the privacy of the following information: Personal Information is recorded information about an identifiable individual that

may include his or her (1) name, address, e-mail address, phone number, (2) race, nationality, ethnicity, origin, religious or political beliefs, (3) age, gender, sexual orientation, marital status, family status, (4) identifying number, code, symbol.

Financial Information includes statements and data that may include his or her (1) income statements, balance sheets, account balances, (2) bank account information, credit ratings, (3) insurance, tax, investment information.

This information will be provided to other advisors, professionals, or third parties solely at your request and consent. We do not disclose any private information about our former or current clients, except as permitted by law.

Our sole intent of collecting your personal and financial information is to create a financial plan that is both feasible and best suited to meet your goals. We will keep personal and financial information accurate by amending our records as needed.

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Investment Policy Statement

I.         Purpose of the Investment Policy Statement

The purpose of this Investment Policy Statement is to establish a foundation of understanding between the investor(s) and investment advisors pertaining to investment recommendations and plan implementation.

This policy outlines our firm’s investment philosophy, explains portfolio construction and describes our performance evaluation process. Furthermore, this statement is intended to provide structured guidance for both the investor(s) and the investment advisors.

II.         Plan Investment Philosophy  

At Summit Financial Advisors, we believe in the importance of long-term investment strategies that are centered on the principles of patience and market understanding. Therefore, the investment portfolio will maintain a passive management style. To supplement this passive strategy, we ask our clients to sign a Ulysses Contract. The terminology of this contract stems from Greek mythology. It is an agreement that investors will not act hastily in volatile markets, just as Ulysses ordered his crew to tie him down on his boat so that he could resist the Sirens’ deadly song. This contract is not legally binding, but is meant to create an increased commitment to a dedicated investment strategy.

We will evaluate the portfolios biannually in order to ensure that the investments are ideally allocated based on an investor’s time horizon, risk tolerance, and risk capacity, among other factors.

While Summit Financial Advisors does not hold any mantras concerning socially responsible investing, which considers both financial return and social good, our advisors will seek to help each investor meet their personal goals.

III.         Portfolio Construction

Or advisors utilize data gathering and the discovery process to understand each investor’s values, goals and dreams. Data gathering is quantitative, while the discovery process can be more qualitative. Employing a risk tolerance questionnaire will assist in completing the risk profile of an investor. Risk tolerance is determined by internal factors such as personality. The second part of a risk profile is risk capacity. Risk capacity is defined by external factors such as an investor’s specific financial situation. Our advisors will utilize an investor’s risk profile and time horizon to determine how to approach portfolio allocation.

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Regarding the factors above, our portfolios are appropriate for investors with a time horizon of at least five years, as this is roughly a full economic cycle. Investors that are not in a position to accept much risk will have their assets placed in low risk funds, while investors with higher risk capacity and tolerance may be placed in more risky mutual funds.

While risk tolerance and capacity are important, the weight that these variables have on the investment allocations will be contingent upon a needs-based analysis of desired future goals. Low risk investments often result in low investment returns, which may create a need for riskier investments. On the other hand, high risk investments may not be necessary if the client’s goals can be achieved through less risky terms.

IV.         Portfolio Allocation

As stated in the portfolio construction section, investments are allocated based on the needs of the individual investor(s). Based on an investor’s goals, risk tolerance, risk capacity, and desired returns, we will place client investments in one of the following categories. A portion of funds will be placed in conservative funds for liquidity needs.

Conservative Funds Risk: Conservative Purpose: Liquidity Investments: Money Market Funds (60%), Treasury Bills (20%),

Certificates of Deposit (20%) After-Tax Expected Rate of Return: 3.7%

Moderately Conservative Funds Risk: Moderately conservative Purpose: Intermediate income needs Investments: Small-Cap (15%), Mid-Cap (25%), Large-Cap (35%), Bond

Market Index Fund (25%) After-Tax Expected Rate of Return: 5.4%

Moderately Aggressive Funds Risk: Moderately aggressive to aggressive Purpose: Long-term income needs Investments: Equities (80%), Bond Market Index Fund (10%),

Commodities for inflation protection (10%) After-Tax Expected Rate of Return: 7.0%

Aggressive Funds Risk: Aggressive Purpose: Long-term income needs Investments: Equities (90%), Commodities for inflation protection (10%) After-Tax Expected Rate of Return: 8.5%

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Below is a list of our firm’s funds, organized by category. Alongside the categories are the corresponding fund names, ticker symbols, and the index that the fund will be benchmarked against.

Category Mapped Ticker IndexG&I Vanguard Growth and Income VQNPX S&P 500Gov't Agency Vanguard GNMA VFIIX Citigroup Mort-backedHi-Yield Bond T Rowe Price High Yield PRHYX CSFB Hi-YieldI/T Corp Harbor Bond HABDX Barclays US AggInternational Fidelilty International Discovery FIGRX MSCI EAFEL/T Corp Vanguard L/T Investment Gr VWESX Barclays US AggL/T Gov't Wasatch U.S. Treasury WHOSX ML LT TreasuryLarge Growth American Century Growth Inv TWCGX Russell 1000 GrowthLarge Value Dodge & Cox Stock DODGX S&P 500Mid Blend TCW Value Opportunities I TGVOX Russell Mid-cap

Mid Growth Fidelity Midcap Stock FMCSX Russell Mid-cap Growth

Mid Value Heartland Select Value HRSVX Russell Mid-cap Value

Money Market Vanguard Prime Money Market VMMXX Citigroup 3mo T-bill

Precious Metals U.S. Global Investors Gold & Precious Metal USERX Commodities

Real Estate CGM Realty CGMRX NAREIT EquityS/T Gov't American Century S/T Gov't TWUSX ML 1-3 Gov CrSmall Blend Royce Opportunity RYPNX Russell 2000Small Growth T Rowe Price New Horizons PRNHX Russell 2000 GrowthSmall Value Northern Small Cap Value NOSGX Russell 2000 Value

V.         Rebalancing

Rebalancing is the process of modifying allocations as they deviate from the target allocations. If the variation is greater than 4% from recommended weighting the portfolio will be rebalanced. Analysis for potential portfolio rebalancing will occur on a quarterly basis.

If an investor’s goals or market conditions have substantially changed, our advisors will discuss the possibilities and implications of readjusting the weightings in the portfolio.

VI.         Performance Reporting

At Summit Financial Advisors we evaluate the performance of our funds quarterly. In order to properly evaluate performance, we will use appropriately matched index funds as benchmarks. While we will not utilize active investment management, we will review the

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tracking error of our mutual funds. Tracking error is used to show how our funds deviate from the benchmarks in terms of return. Doing so will allow us to evaluate the quality of our funds used, and will also help us determine if another custom benchmark is a more appropriate representation or the investor’s investment allocation.

VIII.         Disclaimer

Before partnering with Summit Financial Advisors, prospective clients should review our firm’s investment policy and assumptions. If our investment strategy does not match your preferences, we do not recommend requesting our services.

We believe that the investments chosen for you are the most appropriate given your goals, time horizon, and risk tolerance.

Past returns are not indicative of future returns in the market place. The purpose behind the use of the past returns is to provide a general idea of what a client may expect of their portfolio. A client's portfolio may fluctuate from time to time in response to market changes, and may not match the intended performance.

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Client Profile

Client InformationName Tyler Bedo Mia BedoSocial Security Number 555-55-5555 555-55-4444Date of Birth 9/21/1971 9/13/1971Age 44 44Occupation Sales Consultant/ Manager Career CounselorEmployer Golden Tee Golf

Association, Inc.The Family and Career Institute

Address 103 Buckeye LaneRadford, VA 24141

103 Buckeye LaneRadford, VA 24141

State of Residence Virginia VirginiaHealth Status No known health problems No known health problems

Dependent InformationName Becky Bedo Benjamin BedoDate of Birth 8/28/2005 3/13/2010Age 10 5Health Status Healthy Healthy

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Summary of Goals and Assumptions

The exploration process and collection of information during our initial discovery meetings, helps us understand you and your financial situation. We attempt to gain enough information to develop a workable plan that is acceptable to you. This is facilitated through the Client Intake Form we mailed to you, as well as some original source documents.

Framing your goals and objections requires us to identify results that should follow the planning process. We are here to help you prioritize your goals in a manner that is financially possible and acceptable considering your needs.

Questions listed below have been collected based on our previous conversations. We will thoroughly address them throughout the financial plan.

Because of the nature of financial planning, reasonable assumptions become the foundation to achieving long-term success. From our side, using the collective expertise of our team, we determine assumptions depending on various factors and review them periodically. These assumptions reflect the current or projected marketplace, such as the tax, economic, political and regulatory environments. There are also other assumptions more specific to you and your family, for example planning for college education. Overall, these assumptions will be fully disclosed to you throughout the plan.

Clear, mutually agreed-upon priorities, goals and assumptions are outlined below.

Priorities Achieve a relatively high level of financial satisfaction and security in the event

of an emergency or some other uncertainty. Retire at age 65 and be self-sufficient, which means no dependence on children. Secondary objective is to fund 100% of Becky and Ben’s college education, after

considering their retirement goal of age 65. Maintain privacy of financial affairs. Ensure Becky and Ben’s financial welfare, in the case of unexpected passing

before college completion.

Goals Build a cash reserve of eight months of expenses within the next two years. Complete a comprehensive insurance review that clarifies uncertainties. Budget for the upcoming costs of after-school and summer child care expenses. Retire at age 65 to pursue other talents and dreams. Build a small addition to home for an art gallery. Open a small art gallery in downtown Radford. If successful, donate net revenue

to local youth groups to enhance creative learning. Receive Social Security benefits at the earliest opportunity. Leave an estate for the benefit of Becky and Ben.

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Client Questions Should we refinance our mortgage? If so, should we include closing costs in the

mortgage or pay directly from assets? How much will after-school and summer child care cost? How will we be able to

afford this cost while saving for their post-secondary education and our retirement?

Should Tyler’s parents gift $10,000 to fund Becky and Ben’s college costs? If so, should it be gifted now or upon their death? Should it be gifted to Tyler or directly to Becky and Ben?

What are the changes in Flexible Spending Account (FSA) rules? What is a Health Savings Account (HSA)?

It is necessary for us to purchase an umbrella insurance policy? Is it possible for us to increase the amount we spend on vacations, as Becky and

Ben are growing up quickly? Is it possible to retire at age 65 considering today’s economic environment? Can the guardian for Becky and Ben be outside of the family?

Universal AssumptionsIn each portion of the financial plan, specific assumptions will be listed that were considered in calculations. There are several assumptions that were used across planning areas:

The universal inflation rate is 3.00%. The prime interest rate is 3.25%, but is expected to increase in the future. Life expectancy is age 100. Liability payments are due at the end of the period (month, year, etc.). Normal retirement age is age 67.

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Executive Summary

Behind every financially confident individual, couple, or family, there lies a master plan outlining the minute details and action items that guided them to that point. The purpose of this financial plan is to take you, the future financially confident family, on a journey through your present situation and down the path of achieving your most desired goals, a reflective and educational process. In order to do so, we have examined your current financial situation, and provided recommendations tailored specifically to you and the pursuit of your goals.

Education

In order to fund Ben and Becky’s education, we recommend selling your EE bonds worth and redeeming some of your non-qualified assets from your brokerage account to fund Virginia 529 inVEST plans. After paying state and federal taxes on the EE bonds as well as capital gains tax on the non-qualified assets, you will be left with a lump sum to put towards Ben and Becky’s 529 accounts. Based on our assumptions, these contributions, along with Tyler’s parents’ gift to each account, and a monthly payment to Becky’s 529 plan should ensure that the children’s education is fully funded.

Retirement

You should both be very proud of your saving efforts, as we believe it is feasible for you to retire at age 65. In order to take this retirement we suggest that you start collecting social security benefits at age 65 as well, even though you would like to take those benefits as early as possible. Furthermore, in order to prepare for retirement we also suggest that you begin funding a Roth IRA. We believe you will be subject to increased tax brackets in the future, and paying taxes on your contributions now will provide you with significant tax savings upon distribution of these assets.

Estate

To ensure that Becky and Ben are well taken care of in the event that anything was to happen to the two of you and ensure your family’s privacy, we suggest drafting the following estate planning documents: new wills, living wills, power of attorney, and a joint living trust. Additionally, we suggest writing a letter of instruction to assist your family in dealing with your assets upon passing. By updating contingent beneficiary designations on your life insurance and 401(k) accounts to your trust and transferring a number of your personal assets into the account, they will not be subject to probate in the future.

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Insurance

While examining your financial situation, we noticed a few lapses in insurance coverage that we would like to address. Protection of your most valuable personal property item, Mia’s heirloom rings, does not fall within your current insurance policies, but can be achieved with the purchase of a personal property endorsement. By buying an umbrella policy, you will be able to insure your net worth as well as your boat, at a very reasonable price. In order to meet the minimum insurance amounts required for the umbrella policy, you will need to purchase a new personal auto policy, terminating your current one. Additionally, we believe it best to terminate your current HO-3 policy purchase a new one in order to increase the replacement cost of your home to full value and include an inflation rider and sewer endorsement. According to our calculations based on the information you have provided, Tyler’s current whole life policy does not meet his current coverage needs. To remedy this, we suggest terminating the cash-value policy and purchasing a new 20-year term life policy before the current premiums are due in June. Our last and final recommendation is to contribute to a flexible spending account (FSA) to cover out-of-pocket medical expenses in a tax-advantaged manner.

Investments

In regards to non-qualified investment assets, one of the first primary steps to implement by our advisors is to reallocate your assets in order to fit your investing style and in order to provide you with higher returns you should be achieving.

Not only should you allow us to reallocate your non-qualified investments, we also suggest that you allow us to reallocate your qualified investments as well. One major benefit of reallocating qualified investments is due to the fact that no taxes will be incurred assuming the assets are placed in other qualified accounts.

Following this reallocation of investments, we believe it would be very beneficial to stop funding your Potsdam Annuity and to use a 1035 exchange to transfer the full balance to the Bostonian Variable Annuity. Doing so will allow you to earn a much more respectable return on your investments, and the exchange is tax free.

Tax

In order to leverage your tax situation to create more discretionary cash flow, there are two things you need to do. You first should go to HR at your respective companies and request to fill out a new W-4 stating that you want to have $2,411 less of with holdings. Doing so will allow you to place the money in interest bearing accounts where your money can work for you, rather than sitting somewhere earning nothing. After this strategy is implemented, and assuming you still would like to give $6,220 to charity, you should gift $6,220 of appreciated stock to charities of your choosing. Not only will this free up $6,220 of discretionary cash flow, but it will also allow you to reduce your current capital gains, thus further reducing your tax liability.

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Special Needs

As it is important for Mia to have a small addition added to your home for her art collection, we would like to help you ensure that goal is taken care of. In order to most effectively plan for this goal, we would like to set aside $21,164 of your non-qualified investment assets and not touch that amount until retirement. This will allow the lump sum to grow to the necessary future value to fund your goal at age 65.

Not only would Mia like to add a small addition to her house, but she would also like to fund an art gallery for her retirement. In order to accomplish this goal we feel the first place to begin would be to place the $5,000 in checking account II into a money market account, as it is currently not earning any return. Upon completing this step we would like to set aside a lump sum in your non-qualified investment account of $51,158 to grow until retirement, just as we did with the home addition lump sum.

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Part I: Client PacketPart II: Financial Analysis

Part III: Tax AnalysisPart IV: Insurance AnalysisPart V: Education Analysis

Part VI: Investment AnalysisPart VII: Retirement Analysis

Part VIII: Estate AnalysisPart IX: Special Needs Analyses

Part X: Implementation & Monitoring

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Section A: Financial Statements

We have calculated your Income and Expense Statement, Statement of Financial Position and diagnostic financial ratios. Together, these documents provide baseline data for monitoring the financial planning process and evolution of existing or new financial goals.

An Income and Expense Statement differs from a budget, which is simply a projection of how much you will earn and spend in a given period. Instead, this statement reflects your actual consumption and projected consumption considering the recommendations were implemented.

A Statement of Financial Position, also referred to as a Net Worth Statement, provides a snapshot of your assets owned and debt owed.

Income and Expense StatementTyler and Mia Bedo

Year Ended December 31, 2015Before After

Earned IncomeWages, Salaries, and Tips $159,006 $159,006Bonuses and Commissions $5,000 $5,000Section 79 Income $294 $294 Total Earned Income $164,300 $164,300Unearned IncomeTaxable Interest $200 $206Ordinary Dividends $2,330 $2,400Realized Capital Gains $2,150 $49,290 Total Unearned Income $4,680 $51,896TOTAL INCOME $168,980 $216,196

DEDICATED EXPENSESSalary Reduction for Employer-ProvidedCafeteria Plan Contributions $$$3,600 $3,600Disability Premiums $300 $300Flexible Spending Account $0 $2,160Retirement Contributions $8,492 $8,492 Total Salary Reductions $12,392 $14,552GROSS INCOME $156,588 $201,644TaxesSocial Security Estimate $12,270 $12,867Federal Tax Estimate $19,727 $32,602State Tax Estimate $6,968 $8,365 Total Taxes $38,965 $53,834Debt PaymentsMortgage Payments $17,968 $13,391

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Auto Loan Payments $5,412 $5,412Credit Card Payments $5,100 $5,716 Total Debt Payments $28,480 $24,519Insurance PremiumsAuto $3,000 $1,358Homeowner’s $900 $964Life $2,064 $3,459Umbrella (+ Boat) $0 $146 Total Insurance Premiums $5,964 $5,927Savings/ InvestmentsEmergency Fund Savings $2,100 $2,100Art Gallery Savings $1,800 $1,800Potsdam Fixed Annuity Savings $3,300 $0Other Non-Specified Goals $10,800 $1,850Reinvestment of Non-Qualified Earnings $0 $49,920Reinvestment of Capital Gains & Dividends $4,680 $4,530 Total Savings/ Investments $22,680 $60,200TOTAL DEDICATED EXPENSES $96,089 $144,480

DISCRETIONARY EXPENSESCommunicationSubscriptions (Magazine, Newspapers, Etc.) $200 $200Telephone (Landline, Cell) $1,800 $1,800 Total Communication $2,000 $2,000EducationBen’s Pre-K Costs $300 $300EntertainmentSatellite TV/ Internet $2,400 $2,400Entertainment (Movies, Plays, Shows, Etc.) $2,400 $2,400Recreation (Boating, Hiking, Etc.) $3,600 $3,600Dues (Organizations, Golf Course, Etc.) $2,400 $2,400Travel (Vacation) $3,500 $3,500 Total Entertainment $14,300 $14,300FoodFood/ Groceries $6,900 $6,900Dining Out $4,500 $3,300 Total Food $11,400 $10,200HousingReal Estate Taxes $1,820 $1,820Utilities $4,800 $4,800Other Services (Yard, Waste Removal, Etc.) $400 $400Home Improvements $1,800 $1,800Housekeeping Service $1,800 $1,800 Total Housing $10,620 $10,620

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Personal CareClothing $2,800 $2,800Personal Care (Hair, Dry Cleaning, Etc.) $1,500 $1,500 Total Personal Care $4,300 $4,300MedicalDental & Eye Care Expenses $780 $780Medical Costs (Co-Pay) $480 $480Prescriptions $900 $900 Total Medical $2,160 $2,160TransportationAuto Maintenance (Oil, Fuel) $2,700 $2,700Virginia Vehicle Plate/ Tag $125 $125Personal Property Tax $525 $525 Total Transportation $3,350 $3,350GiftingUniversity Alumni Fund $1,000 $0Church $4,200 $0United Way, American Cancer, Etc. $1,020 $0Holiday Giving $2,400 $2,400 Total Gifting $8,620 $2,400MiscellaneousBank Charges $120 $120Tax Preparation Fees $500 $500Pet Care Expenses $900 $900Postage, Etc. $1,200 $1,200 Total Miscellaneous $2,720 $2,720TOTAL DISCRETIONARY EXPENSES $59,770 $52,350

TOTAL DISCRETIONARY INCOME REMAINING $729 $4,814

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Statement of Financial Position ($)Tyler and Mia Bedo

(As of December 31st, 2015)

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Assets LiabilitiesMonetary Assets Current LiabilitiesChecking Account JT 5,500 Visa JT 3,500Savings Account JT 12,000 MasterCard JT 2,000Money Market Account JT 8,000Investment Assets Long-Term LiabilitiesEE Bonds JT 25,000 Mortgage JT 220,566HRSVX JT 69,000 Auto Loan JT 10,396FMCSX JT 43,000VFIIX JT 13,000 Total Liabilities 236,462RYPNX JT 8,000Retirement Assets NET WORTH 942,388FIGRX T 79,000CGRMX T 60,400USERX T 63,600DODGX T 52,000PRNHX M 15,250VFIIX M 34,500VQNPX M 50,000Potsdam Fixed Annuity M 125,000Insurance Assets (Cash Value)Whole Life T 8,750Whole Life M 8,350Special Funding Assets (Art Gallery)Checking Account II JT 5,000Real AssetsPrimary Residence JT 365,000Personal AssetsAcura TSX Sedan JT 20,000Dodge Grand Caravan JT 8,500Aluminum Boat JT 5,500Mickelson Signed Club JT 5,000Golf Artwork JT 1,000Lifestyle AssetsFurniture JT 65,000Yard Equipment JT 1,500Mia’s Jewelry M 10,000Tyler’s Jewelry JT 2,500Golf Clubs JT 3,000Paintings JT 500Collectibles M 6,000Total Assets 1,178,850

Section B: Financial Ratios

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We performed the following financial ratio analysis to gain insight into your financial strengths and weaknesses. These ratios were calculated based on the Income and Expense Statement and the Statement of Financial Position in Section A: Financial Statements.

Financial ratios complete your financial picture by providing a quantitative measure of financial health that can be compared to a benchmark. Benchmarks are provided to serve as a guide for interpretation purposes. Financial analysis is limited to the past and therefore is not necessarily predictive of the future.

With the exception of a couple small items, you are in very good excellent financial health.

Current RatioThe current ratio determines whether sufficient monetary assets are available to pay off all outstanding short-term debts. The recommended benchmark is a number greater than one to ensure that if all current liabilities were paid then you would still retain monetary assets.

In the event that you must quickly pay off your $5,500 credit card balances, you have 4.64 times more monetary assets available in your three accounts to do so.

Current Ratio ¿Monetary Assets

Current LiabilitiesTarget: > 1.0

Monetary AssetsChecking Account $5,500Savings Account $12,000Money Market Account $8,000 Total Monetary Assets $25,500Current LiabilitiesVISA $3,500MasterCard $2,000 Total Current Liabilities $5,500

Current Ratio = 4.64Current Condition – Excellent

Emergency Fund RatioThe emergency fund ratio has become increasingly more important due to the uncertainty of our economy. In the past, 3 to 6 months was used as the benchmark for this ratio; our firm now recommends 6 to 12 months – however you have provided a mandate for 8 months.

This ratio is calculated using your dedicated expenses, such as debt payments (mortgage, auto and credit card), insurance premiums (auto, homeowner’s, and life) and reinvestment of capital gains and dividends. The savings and investments portion of your dedicated expenses, such as emergency fund savings, art gallery savings, annuity

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payments, and other systematic savings for non-specified goals were excluded. This is because an emergency situation, this payments would likely be halted temporarily. Your discretionary expenses excluded miscellaneous spending such as chartable contributions, travel, gifts and postage.

Your emergency fund will provide you with four months of living expenses without liquidating other assets. You are willing to use the accumulated art gallery savings, as long as this money remains in the bank. Please keep in mind that you could potentially live on your savings for a longer period of time if you were to further decrease or eliminate discretionary spending. As you mentioned previously, given your inclination to be prepared, your goal is to build a cash reserve of 8 months.

Emergency Fund Ratio ¿Monetary Assets

Monthly Living ExpensesTarget: 6 – 12 months

Monetary AssetsChecking Account $5,500Savings Account $12,000Money Market Account $8,000Checking Account II $5,000 Total Monetary Assets $30,500Monthly Living ExpensesDedicated Expenses $3,260Discretionary Expenses $3,796 Total Monthly Living Expenses $7,056

Emergency Fund Ratio = 4.32Current Condition – Needs attention (see Section C, which follows)

Savings RatioThe savings ratio totals your personal savings and employer retirement contributions, and then divides by your annual gross income to determine whether you are saving enough. We recommend saving at least 10% of your annual gross income.

You are currently saving 18% of your annual gross income, allocated to different savings vehicles and goals as outlined below. This is excellent and demonstrates your commitment to all of your future financial goals. Savings committed to your cash reserve, art gallery and annuity are included in this calculation. Based on your systematic savings outside of qualified retirement plans, you are saving $900 per month, or $10,800 per year, in three funds: Royce Opportunity, Heartland Select and Vanguard GNMA.

Savings Ratio ¿Personal Savings+ Employer Contributions

AnnualGross IncomeTarget: > 10%

Personal Savings + Employer ContributionsEmergency Fund Savings $2,100

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Art Gallery Savings $1,800Potsdam Fixed Annuity Savings $3,300Other Non-Specified Goals $10,800Tax-Sheltered Retirement Contributions $8,492Reinvestment of Capital Gains & Dividends $4,770 Total Personal Savings + Employer Contributions $31,262Annual Gross IncomeTyler $113,192Mia $56,538 Total Annual Gross Income $169,730

Savings Ratio = 18.42%Current Condition – Excellent

Debt RatioThe debt ratio illustrates the amount of your assets that are financed by borrowing. A benchmark of 40% is used to ensure that you have not taken on too much debt.

Your assets are funded by 20% of debt. This is excellent and shows that you do not have too much debt compared to the recommended benchmark of 40%.

Debt Ratio ¿Total Liabilities

Total AssetsTarget: < 40%

Total LiabilitiesCurrent Liabilities $5,500Long-Term Liabilities $230,962 Total Liabilities $236,462Total AssetsMonetary/ Liquid $25,500Investment Assets $158,000Retirement Assets $479,750Insurance (Cash Value) $17,100Special Needs $5,000Real Assets $365,000Personal/ Collectible Assets $40,000Use/ Lifestyle $88,500 Total Assets $1,178,850

Debt Ratio = 20.06%Current Condition – Very good

Long-Term Debt Coverage RatioThis ratio illustrates how many times you could make your debt payments based on your current income. The benchmark is to ensure that you have enough annual gross income to make payments for 2½ years.

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Considering your current gross income of $169,730, you could make your payments for just over 7 years. Your long-term debt payments include your mortgage payments and automobile loan payments, as these payments take longer than one year to repay.

LT Debt Coverage Ratio ¿AnnualGross Income

Total Annual<Debt PaymentsTarget: > 2.5

Annual Gross IncomeTyler $113,192Mia $56,538 Total Annual Gross Income $169,730Total Annual LT Debt PaymentsMortgage Payment $17,968Auto Loan Payments $5,412 Total Annual LT Debt Payments $23,380

LT Debt Coverage Ratio = 7.26Current Condition – Excellent

Debt-to-IncomeThis ratio measures the percentage of take-home pay that is committed to consumer credit repayment. Consumer credit payments include all revolving and installment nonmortgage debts. When an individual commits more than 15% to consumer debt repayment then very little is left for meeting other financial obligations.

With less than 9% of your take-home pay going toward consumer credit payment, you are well within the benchmark.

Debt-to-Income ¿AnnualConsumer Credit Payment

Annual After−Tax IncomeTarget: < 15%

Annual Consumer Credit PaymentAuto Loan Payments $5,412Credit Card Payments $5,100 Total Annual Consumer Credit Payment $10,512Annual After-Tax IncomeAfter-Tax Income $118,373

Debt-to-Income Ratio = 8.88%Current Condition – Excellent

Credit Usage RatioThis ratio determines the adequacy of the emergency fund ratio and is a factor in determining credit score. Using a steady amount of credit is important to maintaining and improving your credit score.

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You have been approved for certain limits on your Visa and MasterCard accounts of $24,000 and $15,000 respectively. By measuring how much your available credit you are currently using, we are able to benchmark against the 30% target. With only 14% credit usage, you are using an appropriate amount of credit.

Credit Usage Ratio ¿TotalCredit Used

TotalCredit AvailableTarget: < 30%

Credit UsedVISA $3,500MasterCard $2,000 Total Credit Used $5,500Credit AvailableVISA Limit $24,000MasterCard Limit $15,000 Total Credit Available $39,000

Credit Usage Ratio = 14.10%Current Condition – Excellent

“Front-End” and “Back-End” Mortgage Qualification RatiosYou mentioned that you have considered refinancing your mortgage. In order to qualify to refinance, lenders will look at these measures.

The “Front-End” ratio determines how much of your gross income is dedicated to your annual mortgage payment. Your annual mortgage payment includes principal, interest, real estate taxes and homeowner’s insurance (PITI). Most lenders will require that you spend no more than 28%. You are currently spending 12% of your gross income.

Front-End Mortgage Ratio ¿Annual Mortgage Payment

AnnualGross IncomeTarget: < 28%

Annual Mortgage PaymentPrincipal & Interest $17,968Real Estate Taxes $1,820Homeowners Insurance Premiums $900 Total Annual Mortgage Payments $20,680Annual Gross IncomeTyler $113,192Mia $56,538 Total Annual Gross Income $169,730

Front-End Mortgage Ratio = 12.18%Current Condition – Excellent While similar to the “Front-End” ratio, the “Back-End” ratio takes into account all credit payments. With 18% of gross income being applied to credit payments, you are well below the 36% limit.

Back-End Mortgage Ratio

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¿ Annual Mortgage∧Credit PaymentAnnualGross Income

Target: < 36%Annual Mortgage and Credit PaymentPrincipal & Interest $17,968Real Estate Taxes $1,820Homeowners Insurance Premiums $900Auto Loan Payments $5,412Credit Card Payments $5,100 Total Annual Mortgage and Credit Payment $31,200Annual Gross IncomeTyler $113,192Mia $56,538 Total Annual Gross Income $169,730

Back-End Mortgage Ratio = 18.38%Current Condition – Excellent

Ratio Analysis Summary

We applied ratios dealing with liquidity (adequate income to cover expenses) and solvency (adequate assets to cover liabilities) to your financial situation. All calculations feel within the recommended benchmark, except for the Emergency Fund Ratio. Given that you currently have just over 3 months of living expenses covered, we would like to see this ratio reach your cash reserve goal of 8 months. We will help you achieve your goal within your desired two year time period.

All ratios considering your debt usage demonstrate that you have not taken on too much debt given your financial position. We want to commend you on managing your use of debt. Living within your means creates the opportunity to save, which leads to wealth accumulation and the eventual ability to meet longer-term goals.

Section C: Emergency Fund

Overview

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Factors that affect the number of months of needed expenses include job security, consistency of income (salary vs. commission), number of earners and availability of unused credit capacity. A common approach to building an emergency fund is to increase monetary assets. One source can be designated as, or multiple sources combined to create a savings fund. Liquidity may be key if a planner and client believe that the assets must be readily available. Of course, monetary assets that pay the highest rate of interest should be chosen.

Additionally, an emergency account can be considered unfunded, such as with credit available. The cash value of a life insurance policy, other investment assets and credit cards can be used as supplements to or substitutes for traditional monetary assets.

Assumptions Cash reserve goal of 8 months of expenses. Mia is willing to use her accumulated art gallery savings (Checking Account II)

for an emergency, as long as the money remains in a bank, checking, or money market account.

Visa available limit of $24,000. MasterCard available limit of $15,000.

Current SituationYou currently have $8,000 of cash reserves in your money market account. To this account, you are systematically saving $175 on a monthly basis, or $2,100 each year. There are currently no other efforts being put forth to increase your emergency fund. Your emergency fund as addressed in the previous section is 4.32 months.

Recommendations Considering your current assets and expenses, increasing this ratio to 8 months will require $26,000 in additional monetary assets. While our recommendations stated throughout this plan will affect your dedicated expenses, we will re-evaluate the status of your emergency fund in July of 2016 after implementation of recommendations

To achieve $26,000 in additional monetary assets in the next two years, the following should be considered:

1. Systematic savings of $175 per month to your Money Market Account, resulting in $4,200 over the course of the two years.

2. Charitable giving strategy freeing $6,687 of cash flow, resulting in $13,374 over the course of the two years. This will be deposited to your Money Market Account.

3. Refinance mortgage freeing $4,576 of available cash flow, resulting in $9,152 over the course of two years. This will be deposited to your Savings Account.

These recommendations result in $26,726 of dedicated assets to your emergency fund.

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Emergency Fund Ratio ¿Monetary Assets

Monthly Living ExpensesYear Ended December 31, 2017

Monetary AssetsChecking Account $5,500Savings Account $21,152Money Market Account $25,574Checking Account II $5,000 Total Monetary Assets $57,226Monthly Living ExpensesDedicated Expenses $3,260Discretionary Expenses $3,796 Total Monthly Living Expenses $7,056

Emergency Fund Ratio = 8.11

These three recommendations will allow you to meet your emergency fund goal of 8 months by 2017.

Section D: Credit Card Debt

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OverviewLooking at the liability side of a net worth statement depicts a client’s type of debt as well as available and outstanding balances. Restructuring consumer credit is key to improving discretionary cash flow. One method is to pay off unsecured debt with assets paying little or no after-tax return. Paying off high-interest, non-tax-deductible debt using low yielding monetary assets is essential. Credit card interest rates invariably exceed the interest monetary assets earn; however, through proper debt management, discretionary cash flow may be freed.

Assumptions Savings Account balance of $21,152, mortgage refinance strategy is implemented.

Current SituationYou currently have outstanding credit card debt of $3,500 (Visa) + $2,000 (Master Card). Please see the below table for more details regarding your credit cards.

Visa Credit Card MasterCardBIG National Bank (Joint Liability) University Bank (Joint Liability)18.25% 16.75%$250Minimum payment: the greater of 4% of the balance or $50

$175Greater of monthly interest charge + 1.5% of balance or $50

Monthly Monthly$3,500 (Current Balance)$24,000 available limit

$2,000 (Current Balance)$15,000 available limit

If you were to continue your current payment of $425 per month, it will take 15 months total to pay off the balances on both cards.

Visa Mo. Interest Rate 1.52%

Ann. Interest Rate 18.25%Mo. Payment $425.00

Payment # Bal. Payment Interest Ending Bal.1 $3,500.00 $425.00 $53.23 $3,128.232 $3,128.23 $425.00 $47.58 $2,750.803 $2,750.80 $425.00 $41.84 $2,367.644 $2,367.64 $425.00 $36.01 $1,978.655 $1,978.65 $425.00 $30.09 $1,583.746 $1,583.74 $425.00 $24.09 $1,182.837 $1,182.83 $425.00 $17.99 $775.818 $775.81 $425.00 $11.80 $362.619 $362.61 $368.13 $5.51 $0.00

MasterCard

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Mo. Interest Rate 1.40%Ann. Interest Rate 16.75%

Mo. Payment $425.00Payment # Bal. Payment Interest Ending Bal.

10 $2,000.00 $56.87 $27.92 $1,971.0411 $1,971.04 $425.00 $27.51 $1,573.5612 $1,573.56 $425.00 $21.96 $1,170.5213 $1,170.52 $425.00 $16.34 $761.8614 $761.86 $425.00 $10.63 $347.4915 $347.49 $352.34 $4.85 $0.00

Total Payments $5,877.34Total Interest $377.34

Recommendations1. Increase Credit Card Payment to $800/ month

As part of your current situation and cash flow analysis we reviewed your use of revolving credit. While we considered alternatives for lowering the interest rate such as a home equity line of credit (HELOC) or taking cash from your mortgage refinance, we recommend that you simply increase your monthly credit card payment amount from $425 to $800.

This increase will result is both cards having zero balances in 9 months rather than 15 months, and reduces your total interest paid from $377 to $216; a total savings of $161. While not a huge savings, we think that this addresses your debt reduction goal. This has the added benefit of freeing-up available credit in the event of an emergency while we assist you with your subsequent goal of establishing an emergency fund capable of meeting 8 months of expenses.

The following analysis addresses the effects of implementing the recommendation of increasing payments to $800/ month.

VisaMo. Interest Rate 1.52%

Ann. Interest Rate 18.25%Mo. Payment $800.00

Payment # Bal. Payment Interest Ending Bal.1 $3,500.00 $800.00 $53.23 $2,753.232 $2,753.23 $800.00 $41.87 $1,995.103 $1,995.10 $800.00 $30.34 $1,225.444 $1,225.44 $800.00 $18.64 $444.085 $444.08 $450.83 $6.75 $0.00

MasterCard

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Monthly Interest Rate 1.40%

Annual Interest Rate 16.75%

Monthly Payment: $800.00

Payment # Balance Payment InterestEnding Balance

6 $2,000.00 $349.17 $27.92 $1,678.757 $1,678.75 $800.00 $23.43 $902.188 $902.18 $800.00 $12.59 $114.789 $114.78 $116.38 $1.60 $0.00

Total Payments $5,716.38Total Interest $216.38

Section E: Mortgage Refinance31

Overview

Considering today’s economic environment of low interest rates, a mortgage refinancing alternative should be considered. When a mortgage rate is at least 1% or 2% lower than the current mortgage rate, a refinancing strategy makes sense. Of course this percentage range can differ depending on the client situation and costs associated with refinancing. Other factors such as estimated time in the house should be considered.

There are three primary reasons to refinance mortgage debt:1. To reduce monthly payment2. To reduce total amount of interest paid 3. Take available equity out of the house

Refinancing is not typically cost free, because it involves paying all closing costs (usually between 1% and 3% of the mortgage value). It is possible to borrow an extra amount to cover these costs, which will marginally increase the monthly payment. This strategy allows the client to avoid paying closing costs from monetary assets.

Assumptions Any mortgage refinancing will incur 3% of the mortgage as a closing cost. Mortgage loan payments of $1,497.

Current SituationYou would like to see an analysis showing the impact of 1) including closing costs in the mortgage and 2) paying closing costs from assets. Your current mortgage is through BIG National Bank at a rate of 6.375%. The original balance was $240,000; however, after 74 monthly payments the remaining balance is $219,584. Considering the low interest rate environment, a mortgage refinance strategy should be considered.

Recommendations By analyzing two potential mortgage refinance strategies, which can be found in the Appendix C, we have determined an optimal strategy for you to consider. In each of these cases, it is assumed that the closing costs are included in the balance of the new mortgage. At this time we have not performed an analysis based on paying closing costs from monetary assets, as a slightly higher monthly payment is sustainable over the long run; whereas, your monetary assets are currently in flux as we attempt to grow your emergency fund and implement other recommendations.

1. Maximize free cash flow: Refinance for 30 years at 4.250%.

This refinance results in a monthly payment of $1,115, over $380 per month lower than the current payment. With this additional cash flow, we would recommend contributing to your Money Market account to meet your cash reserve goal.

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Although we recommend refinancing for 30 years because of the much lower interest rate, you would still pay approximately $35,000 less in interest over the life of the loan.

2. Minimize mortgage interest: Refinance for 20 years at 3.875%.

This refinance results in a monthly payment of $1,360, over $137 per month lower than the current payment. Again we recommend putting this additional cash flow to your Money Market Account.

Between the shortened repayment period and the lower interest rate, you would end up paying over $111,000 less in mortgage interest.

Mia and Tyler, after much consideration we believe that the first option offers the greatest combination of short and long term benefits. We will of course assist you with the implementation of this strategy should you desire our help.

Part I: Client Packet33

Part II: Financial AnalysisPart III: Tax Analysis

Part IV: Insurance AnalysisPart V: Education Analysis

Part VI: Investment AnalysisPart VII: Retirement Analysis

Part VIII: Estate AnalysisPart IX: Special Needs Analyses

Part X: Implementation & Monitoring

Overview

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At Summit Financial Advisors, we believe in a strong client tax analysis in order to give the client numerous financial advantages. Tax implications can be found in every section within this plan, and these different sections of the plan can be leveraged to decrease income and social security taxes.

Key Terms Filing Status: Defines the type of tax return an individual will use. Tax Bracket: Shows you the tax you will pay on each portion of your income. Marginal Tax: Determines what tax rate your next dollar of income will be taxed

at. Capital Gains: Additional appreciation above the value at which you acquired an

asset. Capital Gains Tax: A preferential tax rate applied to capital gains on assets held

for at least one year. FICA Tax: Payroll tax to fund Social Security and Medicare.

Federal TaxYour federal tax liability is calculated using the Form 1040 provided by the Internal Revenue Service. Form 1040 determines your tax owed in several steps.

You must first determine your initial taxable income. Income is derived from wages, as well as dividends, capital gains, IRA distributions, and several other sources. Once this income is determined, you are allowed to deduct certain expenses, known as above the line deductions, to arrive at an Adjusted Gross Income. Some of these above the line expenses include Health Savings Account deductions, IRA deductions, and tuition and fees. Once you have calculated your AGI, there are several additional deductions and exemptions, known as below the line deductions, that you can take in order to further reduce your taxable income.

In regards to deductions, you are allowed to take the higher of a standard deduction or a sum of your itemized deductions. The standard deduction for a Married Filing Jointly couple this year is $12,400. Some of the commonly used itemized deductions include mortgage interest, state and personal property taxes, education expenses, and medical/dental expenses. It is important to note that this is not an extensive list, and that there are certain thresholds and limitations that must be met before certain itemized deductions can be taken.

Once standard or itemized deductions are chosen, exemptions can be used to further reduce the taxable income. Exemptions can be taken for each taxpayer as well as the clients’ dependents. The personal exemption amount is currently $3,950 per person.

Once your income is adjusted for all above the line and below the line adjustments, you arrive at your taxable income. Your taxable income allows you to determine what tax bracket you fall into in order to calculate your tax liability. This tax liability can then be reduced dollar for dollar by additional credits.

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State TaxYour Virginia state tax liability is calculated using Form 760 provided by the Internal Revenue Service. Using Form 760, the state tax is calculated similarly to your federal tax, with a few exceptions.

In order to determine your taxable income for state purposes, you use the adjusted gross income stated on the federal return as a starting point. In order to reach the Virginia Adjusted Gross Income you then subtract out the state tax refund claimed on your federal return.

Once you have your Virginia Adjusted Gross Income you then deduct the greater of the standard deduction or the itemized deductions taken on your federal return. If you use the itemized deductions you add back the state and local taxes claimed used for federal itemized deductions. Following deductions you then reduce taxable income by the allowed exemptions.

After the previous step, if you contribute to a Virginia 529 plan you are allowed to take a deduction of up to $4,000 in contributions if you are using the married filing jointly tax status. If you claim childcare expenses on your federal return, you may deduct the full childcare expenses for state purposes up to $6,000

After these steps are completed you arrive at your Virginia taxable income that then allows you to calculate your state income tax liability. This tax liability can then be reduced dollar for dollar by additional credits as well as the spousal tax adjustment amount.

FICA TaxFICA taxes are determined by calculating earned income and subtracting out qualified expenses. Qualified expenses for FICA purposes are section 125 contributions, employer sponsored health care premiums, and other pre-tax benefit expenses.

Assumptions Married Filing Jointly tax filing status. Marginal tax bracket is 25%. Capital gains tax rate is 15%. Virginia marginal tax bracket is 5.75%. FICA tax rate is 7.65%. The universal rate of inflation is 3%. Tax rates will increase in the future. Interest and dividends will grow at 3% Interest and dividend income will be reinvested.

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Current Situation In order to implement advantageous tax strategies, it is important for you to understand where you are currently standing, and how your taxes are derived. As of right now you currently have an expected federal tax liability of $19,727, an expected state tax liability of $6,968, and a Social Security/FICA tax estimate of $12,270.

Federal TaxAfter analyzing your tax situation and making an adjustment for the capital gains tax rate, you should have a federal tax liability this year of $19,512. Your current amount set aside for tax withholdings is $22,138, which is $2,626 more than your expected tax liability.

Income $164,006 wages and bonus $200 taxable interest $2,330 ordinary dividends $750 taxable state refund $1,290 capital gains; adjusted for capital gains tax rate $294 Section 79 income

Above the line expense adjustments $3,600 to a Section 125 Cafeteria Plan $8,492 in qualified investment contributions $300 other pre-tax benefits No funding of available employer sponsored health care premium

Itemized Deductions $14,132 mortgage interest $6,220 charity contributions $6,086 state tax $525 personal property tax $1,820 real estate tax

Exemptions – $16,000 Credits – None

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Income: $168,870Expenses: $ (12,392.00)Adjusted Gross Income: $ 157,338.07Itemized Deductions: $ (28,783.00)Exemptions: $ (16,000.00)Taxable Income: $ 112,555.07Tax Liability: $ 19,512.00Credits: N/A

State Tax

Federal AGI: $156,478Virginia AGI: $155,728Itemized Deductions: ($22,697)Exemption: ($3,720)Virginia Taxable Income: $129,311Estimated Tax: $7,178Spousal Tax Adjustment: ($259)State Tax Liability: $6,919

FICA TaxThis year your expected FICA tax liability is $12,621.

RecommendationsAfter analyzing your tax data and reviewing different possible courses of action based on a federal tax analysis in conjunction with other planning areas, there are several recommendations we have developed for you going forward. It is our goal to present you with our recommended course of action, as well as other possible courses of action in order to arrive at a mutually agreed upon tax strategy that best suits you.

1. Reduce federal tax withholdings One area we have identified for change is your current federal tax withholdings amount for this year. As of now you are having your company withhold more money for your federal tax liabilities than is necessary. As you will get this money back later in the form of tax refunds, you are essentially providing the government with an interest free loan for the amount of excess withholdings. We believe you would benefit from reducing your withholding amount by $2,411 and using this increase in cash flow to fund other goals

2. Gift appreciated stock to charity Charitable contributions are currently being funded with discretionary cash flow, but stock can be used to fund desired charities while freeing up discretionary cash flow. When gifting appreciated stock directly to charity, no capital gains taxes are applied to the distribution. The full fair market value of the stock can be applied as a charitable deduction for federal tax purposes, and the appreciated amount of stock over the basis can be further used to reduce capital gains.

AlternativesIn addition to these recommendations some additional strategies to implement could be to sell investments at a capital loss to offset capital gains.

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Who What When Where Why How How MuchTyler and

MiaReduce

withholdingsWithin 1 month

Respective companies

Increase discretionary

cash flow

Fill out new W-4

$2,411

Tyler and Mia

Use appreciated

stock for charitable

contributions

Before tax filings due

From non-qualified

investment to desired charities

Increase discretionary

cash flow and realize tax benefits

Gift appreciated investments directly to charities

$6,220 (subject to

change)

After adjusting for comprehensive planning recommendations in addition to our recommended tax strategies, below are your current projected taxes for the following 1, 3, and 5-year period.

2016 2018 2020Federal Tax $32,602 $28,235 $31,449State Tax $8,365 $7,468 $8,128FICA Tax $12,845 $13,680 $14,543Total Tax $54,881 $49,383 $54,120

Disclaimer: As we are not tax professionals, we advise that you review these strategies with a CPA before implementing our recommendations.

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Part I: Client PacketPart II: Financial Analysis

Part III: Tax AnalysisPart IV: Insurance Analysis

Part V: Education AnalysisPart VI: Investment AnalysisPart VII: Retirement Analysis

Part VIII: Estate AnalysisPart IX: Special Needs Analyses

Part X: Implementation & Monitoring

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Section A: Life Insurance

OverviewLife insurance is purchased to ensure the financial security of the surviving spouse and family in the event one of you was to pass away unexpectedly.

The need for life insurance is founded on three basic notions: 1. People earn money during working lives.2. Money that is earned supports a desired standard of living.3. A desired standard of living should not have to change due to the death of an earner.

There are two basic types of life insurance policies:

Term Life Insurance Whole-Life InsuranceLength of Policy 1-30 years LifePremium (year to year) Fixed or Increasing FixedCash Value No YesLoans/ Withdrawals No YesDeath Benefits Guaranteed Guaranteed

There are many commonly used methods for determining a client’s gross life insurance need. After considering your situation, the Needs-Based Analysis Approach was selected. This approach provides a framework that focuses on projecting financial needs and then discounting for the effects of inflation, taxes and potential investment returns.

Assumptions Assets available at Tyler’s death include his IRA and 401(k). Assets available at Mia’s death include her Rollover IRA, 401(k) and the annuity. Need $130,000 in income (before-tax) to fund household expenses. Willing to allocate $100,000 of nonretirement investment assets toward survivor

needs. Surviving spouse will invest any cash settlements in a moderately conservative

portfolio before and after retirement; this rate will supersede all other rate-of-return assumptions.

Your state and federal tax bracket is 30.75%, until the surviving spouse retires. Your combined marginal tax bracket is 30.75%, while in retirement. Pre-fund retirement and education objectives, even if one of you dies. Surviving spouse needs $125,000 per year (in today’s dollars) when they retire. Final expense needs:

$20,000 for final debts (credit cards, auto loans, etc., but not the mortgage) $5,500 for final illness costs $10,000 for funeral expenses $9,500 for estate administration costs $10,000 for other short-term needs $25,000 for a spousal adjustment period

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All liabilities, including your mortgage, will be paid off if possible. In the event of Tyler’s death, Social Security benefits would be:

$2,384 yearly to Mia from age 67 to age 95, if Tyler dies. $1,788 yearly to Becky and Ben each until age 18, if Tyler dies. $1,788 yearly to Mia until Becky and Ben turns age 16, if Tyler dies. $1,705 yearly to Mia from age 60 to age 67, if Tyler dies. This represents

a 28.50% reduction in benefits based on age 67 survivor benefits. In the event of Mia’s death, Social Security benefits would be:

$1,622 yearly to Tyler from age 67 to 95, if Mia dies. $1,216 yearly to Becky and Ben until age 18, if Mia dies. $1,216 yearly to Tyler until Becky and Ben turns age 16, if Mia dies. $1,160 yearly to Tyler from age 60 to 67, if Mia dies. This represents a

28.50% reduction in benefits based on age 67 survivor benefits. Surviving spouse plans to stop working at age 60 and begin taking early

retirement survivor benefits, if available. For conservative planning purposes, neither interest nor dividends will be used as

an income source when planning insurance needs.

Current Situation By using the Needs-Based Analysis Approach and assumptions addressed above, we calculated the amount of life insurance needed. Please keep in mind that each of your two current life insurance policies were factored into the coverage needed calculation.

Assuming a 30.75% combined marginal tax bracket pre-retirement and post-retirement, your life insurance needs are:

Coverage NeededTyler $856,834Mia $369,855

Per your assumptions of a 30.75% combined marginal tax bracket pre retirement and 25% post retirement, your life insurance needs are:

Coverage NeededTyler $792,211Mia $310,317

Our recommendations are based off of the constant 30.75% combined marginal tax bracket, as it is likely that tax rates will continue to climb. We wanted you to understand the impact that assuming a lower tax bracket can have on coverage determination.

Your life insurance policies are outlined below for your review.

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Tyler Mia Tyler MiaType of Policy Whole Life Whole Life Group Term Group Term

Insurance Company

Manhattan Insurance Company

Manhattan Insurance Company

Great Plains Assurance and

Protection Corporation

Virginia Highland Life

Insurance Company

After-tax rate of return

5.50% 5.50% 0% 0%

Death Benefit $100,000 $100,000 2 x salary (not

including bonus)2.5 x salary (not including bonus)

Cash Value $8,750 $8,350 $0 $0Annual

Premium $1,104 $960 Company paid Company paid

Tyler’s Total Coverage = $309,820Mia’s Total Coverage = $235,240

To evaluate the cost-effectiveness of your cash value life policies, the Yearly Price per Thousand (YPT) method must be applied. This formula provides quick insight into whether the policy should be replaced. By using an established benchmark cost determined by your age, it becomes possible to compare policies.

Current YPTBenchmark (Age 44): $4.00

Tyler $4.90Mia $3.55

The interpretation of the YPT is as follows: Because Mia’s policy’s YPT is less than the benchmark then the policy should be maintained. On the other hand, Tyler’s policy’s YPT is greater than the benchmark. It is only when the YPT becomes greater than two times the benchmark price that the policy should be replaced. Based on the calculations above, neither policies are overpriced.

Regarding the group term policies, your current employers pay the premiums on your behalf. You must include any premiums paid on coverage exceeding $50,000 as gross income, also known as Section 79 Income. Tyler, you had $192 of Section 79 income last year and Mia, you had $102.

Recommendations1. Purchase New Term Life Policies

As addressed above, there is a life insurance coverage shortage. While your current private policies are not overpriced, they do result in a large coverage gap (over $500,000 for Tyler and nearly $150,000 for Mia). Therefore, our first recommendation is to purchase new private term policies. This will ensure that you are appropriately covered in

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the event one of you was to pass away unexpectedly. We spoke to several insurance agents and found a policy that best meets your needs through Eric Johnsen, a State Farm agent.

Tyler, we found a 20-year term policy that provides a death benefit of $900,000 with an annual premium of $1,832. This will increase the cost of coverage by $477 annually, to a total of $2,309. Furthermore, we recommend a policy that includes a disability waiver provision. This optional provision ensures the policy to remain in effect during a period of disability, without the additional cost of continuing premium payments.

Mia, we found a 20-year term policy that provides a death benefit of $500,000 with an annual premium of $885. Similar to Tyler’s policy, with the disability waiver provision this will increase the cost by $256 annually, to a total of $1,150.

Both of these policies have guaranteed renewable provisions, meaning that you will be able to continue the policies without the need to provide updated proof of insurability. However, the subsequent premium will be higher than the premium you are paying for the first 20-year period.

These changes will require you to pay $3,459 annually, which is $1,395 more than you are currently paying for your combined life insurance coverage.

2. Terminate Current Cash-Value Policies

After the new policies are in place, we recommend terminating your current cash-value policies. It is vital to make sure that your new policies have been purchased and are in place, as any lapse in coverage could be disastrous.

Requesting that the insurance company return the cash surrender value of the policies will result in $17,100. However, the value of the cash received in excess of net paid premiums is subject to federal and state income taxation. When we determine the earnings portion of your policies, we can calculate these taxes and determine your net proceeds. Please fill out and send the necessary form, which we can help you locate, to the insurance company to request the surrender. Depending on several factors, it could take weeks to receive the check.

3. Maintain Current Employer-Provided Policies

Concerning your employer provided group term policies, we would like for you to leave these in place. While these policies provide coverage during your employment, it is important to note that coverage will most likely cease when you leave your positions.

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Who What When Where Why How How MuchTyler & Mia Purchase

new 20- year term

life policies

Before your current

premiums are due in

June

Through Eric

Johnsen, or another agent of

your choice

To fill your current

coverage shortfalls

Meet with an agent to

purchase the policy; A physical

exam may be required

Tyler: $2,309/ year

Mia: $1,150/ year

Premium payments:

$3,459/ yearTyler & Mia Terminate

current cash-value

policies

Before your premiums are due on your old

policies in June but

after your new policies are in place

Through the agent that provides

your current policies

Although not

overpriced, these

policies do not provide

adequate coverage

Contact agent to

terminate policy and

request receipt of cash value

Tyler:Cash Value

$8,750Mia:

Cash Value $8,350

Total Cash Value:

$17,100

End premium payments:

$2,064/ year

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Section B: Health Insurance

Overview President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law March 23, 2010. As a result, the health insurance industry underwent dramatic changes affecting health care providers, insurers, businesses, and individuals.

The following two changes are especially relevant to your situation: Individual Mandate: Individuals who do not have health insurance or a qualifying

plan will be forced to pay a shared responsibility payment. Flexible Spending Accounts (FSA): The use it or lose it rule has been modified to

allow a $500 annual carryover of unused contributions.

Many different types of plans exist to meet various health insurance needs, including: Traditional Indemnity Plan:

The insured can obtain services from any provider for a higher premium and service fee.

There are many restrictions placed on these plans. Managed Care Plans:

1. Preferred Provider Organization (PPO) Restricted to a network of physicians and hospitals May go outside of the network (higher deductible and copayment) Lower expenses than Traditional Indemnity Plan

2. Point-of-Service Plan (POS) Physician choice is restricted May go outside of the network for additional costs Hospital choice is limited to network

3. Health Maintenance Organization (HMO) Lowest cost Restricted to a network of physicians and hospitals Best for households that frequently use medical services

High-Deductible Health Plan (HDHP): These plans may be an indemnity, PPO, POS or HMO Best for households that are generally healthy Required disciplined saving to fund HSA to cover expenses

Several types of tax-advantaged accounts are offered to provide assistance with health insurance costs. These two accounts are available through your current employer:

Flexible Spending Account (FSA) Designed to offset qualified out-of-pocket medical expenses Funds contributed are deducted from paycheck before taxes are imposed Individuals may roll over $500 of unused funds to the next year Contribution limit of $2,550 (2015) per year

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Health Savings Account (HSA) Designed to offset qualified out-of-pocket medical expenses Contributions are deductible on your tax return Contributions are not forfeited but rather roll-over from year to year At 65, all contributed money and earnings can be rolled into an IRA Contribution limit of $3,350 (2015) for individuals and $6,650 (2015) for

families

Assumptions Tyler’s employer offers a FSA; the FSA is not being funded. Mia’s employer offers a HDHP with a HSA account.

Current SituationYour family is covered through Tyler’s employer. The health provider, Peacock & Peacock is a Health Maintenance Organization (HMO). Tyler, the $300 monthly premium is paid pre-tax through your company’s Section 125 plan. You were curious about the lifetime ceiling for services per family member of $1,000,000. After the passage of the PPACA, this ceiling is no longer in place as long as the services are considered medically essential.

Additionally, your employer offers a FSA, which has remained unfunded due to confusion surrounding the use it or lose it rules. Beginning in 2014, participants are allowed to roll over up to $500 of unused funds at the end of the plan year.

Thank you, Mia, for following up with your firm regarding the rumors that they offer a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA). With a monthly family premium of $210, this would be significantly less expensive than the $300 each month paid for Tyler’s plan.

Recommendation 1. Retain Health Insurance Through Tyler’s Employer

As addressed above, enrolling in the HDHP through Mia’s employer would save $90 in premiums each month. HDHPs offer many benefits for those who have minimal health care needs. Due to the high deductible nature of the plan, premiums are much lower than other health care plans. Considering your two young children, the chances of requiring health care services are high. Therefore the potential premium savings will not outweigh the deductibles.

2. Contribute to FSA

Your family’s current insurance plan through Tyler’s employer seems to meet your health care needs. You pay $2,160 in out-of-pocket expenses toward co-pays, prescriptions and dental and eye care expenses. With some more background information regarding FSAs and the $500 annual carryover, we encourage you to fund this account with $2,160.

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We want to briefly review the tax implications of this decision:

Tax LiabilityWithout $2,160 ContributionFederal $19,727State $6,968FICA $12,270Total Taxes $38,965

Tax LiabilityWith $2,160 Contribution

Federal $19,186State $6,844FICA $12,105Total Taxes $38,135

Contributing $2,160 to the FSA will result in an annual tax savings of $830.

However, please be aware that once your yearly election is made, you are unable to change it unless a qualifying life event occurs. Contribution amounts can only be adjusted at open enrollment, which may have already passed for plan year 2016. Tyler, please confirm with your employer’s Human Resources department when this period is and let us know if you can implement our recommendations for the upcoming year.

Retaining your current insurance while funding your FSA will cover your out-of-pocket medical expenses and provide tax savings.

Who What When Where Why How How MuchTyler Contribute

to FSADuring the

next enrollment period for plan year

2016

Through your

employer’s HR

department

To cover out-of-pocket medical

expenses in a tax-

advantaged manner

Meet with HR

department to fill out forms to specify

contribution amount

$2,160/ year

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Section C: Disability Insurance

OverviewIn today’s workforce, the probability of becoming disabled is more likely than dying in a given year. The Americans with Disabilities Act defines a disability as broadly meaning a physical or mental impairment that substantially limits a person’s major life activities.

When an individual becomes disabled, they lose their ability to earn income. Without income, forced liquidation of assets to meet living expenses may occur. Additionally, unexpected expenses associated with a disability can quickly deplete an emergency fund.

Disability insurance policies cover the loss of earned income in order to protect a family’s net worth. Unearned income is not insurable with a disability policy, as this

The amount coverage purchased is typically a percentage of income and is normally acquired as monthly or annual income replacement. Disability policies have elimination periods, benefit periods, and income replacement percentages. Benefits begin following an elimination period, or waiting time during which no benefits are paid and the client can recover. Income replacement ratios are usually around 60% of pre-disability earned income.

Policy Duration Short-Term Disability Policy

Coverage begins after the claimant has exhausted medical and personal leave days

6 months – 2 years Coordinated to work with a long-term disability policy

Long-Term Disability Policy Provide benefit coverage for as little as three years or as long as a lifetime Typically offer coverage until a specific age, such as 65 years old

Types of Policies Any-Occupation Policy

Pays reduced or no benefits as long as insured can maintain any employment

Own-Occupation Policy Pays benefits if insured is unable to perform specific duties related to own

occupation Highest premium

Modified Own-Occupation Policy Pays benefits if the insured is unable to perform specific duties related to

own occupation AND is also unable to work in an alternative occupation for which they are qualified

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Taxation of BenefitsTaxability of benefits is based on who paid the annual premium during the year in which the disability occurs. If the individual and employer paid premiums during the year, the employer paid portion would be taxable to the employee. However, if the employee elects to include the contributions as income then the benefits are not taxable.

Social Security Disability Insurance (SSDI)Social Security is another option for receiving disability benefits when you are unable to work. We do not recommend assuming these benefits will be available because the qualification process can be difficult. The worker must be currently eligible to receive Social Security benefits, be totally disabled, and expect that disability to last for at least 12 continuous months.

Assumptions No SSDI benefits will be received. In the event of a disability, you will continue saving for other goals. Cash settlements received will be invested using a moderately conservative asset

allocation.

Current SituationYour life disability policies are outlined below for your review.

Tyler Mia Tyler MiaType of Policy Group Group Group Group

Insurance Company

MA Disability Assurance

Corp.

All-World Life and Disability

Company

MA Disability Assurance

Corp.

All-World Life and Disability

CompanyWait Period 0 days 0 days 90 days 90 days

Benefit Period 90 days 90 days To age 65 To age 65

Disability Benefit

100% of salary & bonus

100% of salary & bonus

60% of salary (not including

bonus)

70% of salary (not including

bonus)

Definition Own Occupation

Own Occupation

Own Occupation

Modified Own Occupation

Benefit Frequency Bi-weekly Monthly Bi-weekly Monthly

Premium Amount Company Paid Company Paid Company Paid

$25 Monthly (pre-tax dollars,

employee benefit)

These policies all have sufficient short-term coverage because the entire waiting period of the long-term policies are covered. Both long-term policies provide coverage until the age of retirement and therefore are ideal.

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You both had expressed concern regarding the negative outcomes associated with disability. Here are the findings considering your current policies:

Short-term disability (after elimination period): Tyler becomes disabled: Monthly income shortfall of $217. Mia becomes disabled: Monthly income surplus of $566. Disablement of both of you: Monthly shortfall of $977.

Long-term disability (after elimination period): Tyler becomes disabled: Monthly income shortfall of $2,638. Mia becomes disabled: Monthly income shortfall of $272. Disablement of both of you: Monthly shortfall of $4,236.

Recommendations 1. Tyler, Retain Coverage Through Employer

Tyler, you are covered by your employer and therefore changing the policy becomes difficult and potentially impossible. We do not want you to opt out of your current insurance as your company pays the premiums.

Although you see the shortfalls listed above and may worry, disability insurance presents the potential for over-insurance between employer and private policies. Additionally, paying for a disability policy that covers 100% of salary would be cost-prohibitive.

2. Mia, Retain Coverage Through Employer

Similarly, Mia you are covered by your employer. You pay $25 per month pre-tax for your long-term Modified Own Occupation policy. We recommend that you stay covered under your employer-sponsored plans as well.

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Section D: Automobile Insurance

OverviewAutomobile insurance ensures that you remain legal while on the road, protects your vehicle(s), and defends the welfare of your family. Owning a car insurance policy will protect your finances from unexpected and astronomical expenses.

A personal automobile policy (PAP) may be structured to include liability, personal injury protection, medical payments, uninsured and underinsured motorists, and physical damage coverages. The six main parts of a PAP are outlined below.

Part A: Liability Coverage

Liability coverage protects a covered individual against a suit or claim arising out of the ownership or operation of a covered vehicle. This coverage applies to the insured and any resident family member, as well as any person using the named insured’s covered automobile.

Coverage amounts are written in split limits, where the amounts of insurance are stated separately. The Virginia state-required limits of 25/50/20 are as follows:

Bodily injury/ death of one person: $25,000 Bodily injury/ death of two or more persons: $50,000 Property damage: $20,000

Part B: Medical Payments

Medical payments cover all reasonable medical and funeral expenses incurred by an insured in an accident. The coverage includes medical expenses for the insured, passengers, and family members driving the covered vehicle at the time of the accident, regardless of who is found at fault. Additionally, it covers the insured and family members injured in another car or injured as a pedestrian.

Part C: Uninsured Motorists

Uninsured motorists coverage pays for bodily injury, and property damage in some states, caused by an uninsured motorist, a hit-and-run driver, or a negligent drive whose insurance company is insolvent. The coverage applies to the insured, family members, any other person occupying a covered auto, and any other person legally entitled to recover damages.

Underinsured motorists coverage can be added to a PAP to provide more complete protection. This coverage fills in the gap that arises when the negligent party meets the legal insurance requirements, but is legally responsible for additional amounts.

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Part D: Coverage for Damage to Your Automobile

The insurance company will pay an amount in excess of your deductible for direct and accidental loss to your covered automobile or any non-owned automobile. A non-owned automobile is a private passenger car, pickup, van or trailer that is not owned by, furnished by, or made available for your regular use.

Two optional coverages are available: Collision Coverage: The upset of your covered automobile or non-owned

automobile, or its impact with another vehicle or object. Comprehensive Coverage: Covers specific situations or perils, including glass

breakage, missiles or falling objects, fire, mischief or vandalism, explosions and earthquakes, windstorms and contact with animals or birds to list a few.

Comprehensive coverage requires that you pay a separate deductible in addition to the deductible for collision coverage.

Temporary transportation expenses are included with Part D coverage. This coverage applies if you have a loss of your car or another car, such as a rental car. Temporary transportation expenses include train, taxi, bus and rental car costs. For this coverage to apply there is no deductible. Towing costs can be added to this coverage and apply when your car breaks down.

Part E: Duties After an Accident or Loss

As the insured you will be required to perform certain duties after an accident. These duties include promptly notifying the insurance company, cooperating with the insurer in the investigation and settlement of a claim, sending the insurer copies of notices and legal papers received, and taking a physical exam if required.

Conditional duties include notifying the police if a hit-and-run driver or uninsured motorist is involved and allowing for the inspection of your vehicle if you are seeking coverage under Part D.

The insurance company has no duty to provide coverage unless there has been full compliance with all of the duties outlined in your policy.

Part F: General Provisions

The PAP provides coverage for the insured while in the US, US territories, Puerto Rico and Canada. All states restrict the insurer’s right to cancel or prevent renewal of coverage. Termination provisions regarding cancellation allow the named insured to cancel at any time, provided written notice. However, the insurer may only cancel if the premium has not been paid, the driver’s license of the insured has been suspended, or the policy was obtained through material misrepresentation. The insurer must notify the insured if coverage will be discontinued at least 20 days prior to the end of the period.

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Assumptions Tyler and Mia are both insured and have good driving records. Tyler and Mia drive an average amount each year, about 1,000 miles per month. A Multi Car discount has been applied. A Multi Line discount has been applied (Home 15% + Umbrella 5% = 20%

discount).

Current SituationYou currently have full coverage on both of your vehicles (Acura TSX Sedan and Dodge Grand Caravan). The automobile insurance is provided by Missouri Valley Insurance Corporation. The policy has a $500 deductible for both comprehensive coverage and collision coverage. Coverage includes car rental coverage, towing and $5,000 for medical payments. A premium of $1,500 is paid semi-annually.

Your current insurance includes: Bodily injury/ death of one person: $100,000 Bodily injury/ death of two or more persons: $300,000 Property damage: $50,000 Uninsured/ underinsured motorist: $100,000

Recommendations1. Purchase New PAP

To hold umbrella insurance, you must meet the minimum amounts of coverage for property and casualty. This includes minimum PAP coverage of 100/300/100, which you currently do not meet due to the property damage limit. Umbrella insurance will be addressed in Section F.

After speaking with Eric Johnsen at State Farm, he suggested that we increase your coverage limits to 250/500/100 to meet your needs. This will apply to your uninsured/ underinsure motorist coverage as well.

The premiums would be $350 for the Acura and $329 for the Dodge, semi-annually. This results in annual savings of $1,642, outlined in the table below, compared to your current policies. Please keep in mind that discounts were applied to these premium figures. Your medical payments coverage decreases from $5,000 to $2,000. There will be a $100 deductible on comprehensive coverage and a $500 deductible for collision coverage.

While this specific policy was found through State Farm, we are willing to work with your current agent or another agent of your choosing to ensure the best coverage and policy cost.

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2. Cancel Existing Policy

After these new policies are in place, we recommend that you cancel your current policies by contacting your current agent. We recommend you make this change by the end of this year, so that the new policy is in force beginning in 2016.

Who What When Where Why How How MuchTyler & Mia Purchase

new PAPBefore July Through

Eric Johnsen, or

another agent of

your choice

To increase your

coverage to meet the minimum amounts

required for an umbrella

policy

Meet with an agent to

purchase the policy

Acura:$350 semi-

annually

Dodge:$329 semi-

annually

Premium payments:

$1,358/ annually

Tyler & Mia Terminate current PAP

policies

In July, when you

informed us that your

policy will be renewed

Through the agent that provides

your current policies

To allow for a new

policy, with increased coverage and lower premiums, that meets

the minimum amounts

required for an umbrella

policy

Contact agent to

terminate policy

End premium payments:

$3,000/ year

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Section E: Homeowner’s Insurance

OverviewA home is likely the largest financial and most emotional investment a family makes. A homeowner’s insurance policy protects you from certain home-related property and liability risks.

There are six basic types of standardized policy forms: HO-2 (Broad Form): Covers the dwelling, other structures and personal property

on a named perils basis. HO-3 (Special Form): Covers the dwelling and other structures on a risk-of-

direct-physical loss basis. All direct physical losses are covered, except if specifically excluded. Personal property is covered on a named perils basis.

HO-4 (Renters): Covers a tenant’s personal property on a named perils basis. HO-5 (Comprehensive Form): Provides open perils coverage, also referred to as

all-risks coverage, on the dwelling, other structures and personal property. HO-6 (Unit Owners Form): Offers coverage for personal property on a named

perils basis. HO-8 (Modified Coverage Form): Designed for older home. Dwelling and other

structures are based on the amount required to repair or replace using common construction materials.

These forms provide identical liability coverage, but differ regarding the extent of property coverage and the type of home involved.

Although your homeowner’s policy will be more detailed, the general format is as follows:

Declarations Page : This page identifies the basic terms of the contract and presents

information unique to your situation. Information such as your policy number, policy period, coverage limits,

deductible amount, premium amount, and title of endorsements affecting the policy will be listed.

Definitions : This section of the policy defines terms and explains concepts relevant to

your policy to eliminate ambiguities.

Section I: Property Coverage Coverage A (Dwelling): This specifies coverage of the main residence and

any attached structures, such as a garage. Covered losses are based on the replacement cost of the dwelling. The replacement cost refers to the cost to purchase, repair or replace the dwelling using materials used previously.

Coverage B (Other Structures): This covers any structure not attached to the main residence, such as a detached garage or tool shed. The amount of coverage is typically limited to 10% of Coverage A.

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Coverage C (Personal Property): Generally, all unscheduled personal property of the insured where the loss is verifiable and that is not normally covered by other policies is covered regardless of location. The amount of coverage is limited to 50% of Coverage A, although this may be increased or decreased by an endorsement.

Coverage D (Loss of Use): If the main residence is uninhabitable due to a covered loss, this policy will cover the loss of use expenses and income up to 30% of Coverage A.

Section II: Liability Coverage Coverage E (Personal Liability): This coverage protects the insured when

a claim or suit for damages is brought because of bodily injury or property damage allegedly caused by an insured’s negligence.

Coverage F (Medical Payments to Others): If an individual is accidentally injured on an insured’s premises or due to the activities of an insured, resident employee, or animal owned by or in the care of an insured this will pay the associated, reasonable medical expenses.

Assumptions Replacement cost of your home $390,000. Market value of your home is $365,000. The value of your home will increase at 3% per year. A Claim Free discount has been applied ($290 in savings). A Multi Line discount has been applied (Home 15% + Umbrella 5% = 20%

discount).

Current SituationYour current HO-3 policy insures your home for $225,000. There is a $100,000 liability limit underwritten by XYZ Insurance. The deductible is $750 and annual premium is $900. After looking at your policy, there is no inflation endorsement or personal property endorsements on your items.

Recommendations 1. Purchase New HO-3 Policy

After speaking with Eric Johnsen at State Farm, he recommends that you purchase a different HO-3 policy, with some amendments, that insures your home for $390,000. Your personal property is covered to 75% of your home value, or $292,500. There is a $2,500 coverage limit for jewelry. There is a $300,000 liability limit. Additionally, there are no fault liability medical payments of $5,000. The deductible is $1,000 and annual premium is $964.

This premium includes an inflation rider, a sewer endorsement and an increased dwelling coverage. The inflation rider will keep up with costs of materials, upgrades to meet building codes and labor. The sewer endorsement has an annual cost of $56, and has been included in the overall policy premium listed above. The increased dwelling coverage is

57

standard on the policy and provides and additional 20% should the $390,000 of coverage not be enough. Although you would be 100% insured with this policy, this will provide a safety net in case things are more expensive than planned.

There is an additional endorsement available, referred to as identity theft restoration. This coverage protects everyone in the household in case an identity becomes compromised. We would like to discuss your thoughts on this coverage before recommending it be implemented. The cost would be an additional $25 annually.

2. Insure Valuable Personal Property

Regarding your valuable collectible assets and lifestyle assets, some additional coverage is recommended. Because Mia’s rings surpass the $2,500 limit stated on your recommended homeowner’s insurance, we recommend that you insure your diamond ring and band for an annual premium of $128. This pair set premium will ensure that if one ring were lost, the other would be replaced as well. This is an all-perils policy, which means it does not matter how the damage happens.

We have listed the annual premiums as quoted by Eric Johnsen of State Farm. We do no feel that anything else requires additional personal property coverage.

Personal Property Annual PremiumJewelry – Pair Set $128Signed Golf Club $125Golf Clubs $108Jewelry $78Harp (Non-Professional) $59Artwork $32Antique Place Setting $32China Cabinet HO-3 Policy

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Who What When Where Why How How MuchTyler &

MiaPurchase

new HO-3 policy with

100% replacement

value

Before July Through Eric

Johnsen, or another agent of

your choice

To increase replacement cost to full

home value; To include an inflation rider and

sewer endorsement

Meet with an agent to

purchase the policy

Premium Payments:$964/ year

Tyler & Mia

Terminate current HO-3

policy

In July, when you

informed us your policy

will be renewed

Through the agent that provides

your current policy

To purchase more

adequate coverage

Contact agent to

terminate policy

End Premium Payments:$900/ year

Tyler & Mia

Purchase personal property

endorsements for Mia’s

rings

Before July Through Eric

Johnsen, or another agent of

your choice

Protect rings that exceed HO-3 policy

coverage

Meet with an agent to

purchase the policy

$128/ year

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Section F: Umbrella Insurance

OverviewThe Personal Umbrella Policy (PUP) was created to provide additional liability coverage in case of a catastrophic event. If you are sued or have a claim brought against you and your current policies are exhausted from providing coverage, then excess coverage will come from your umbrella policy. This coverage is typically purchased in increments of $1 million.

In the rare event you are sued, a legal judgment may be paid from current assets as well as from your future earnings. The PUP will pay for defense costs. This type of policy is relatively inexpensive when compared to the large amount of protection offered.

Assumptions Our recommendation to increase the personal automobile policy coverages and

homeowner’s coverage will be implemented. You will purchase boat insurance to qualify for an umbrella policy.

Current SituationWhile reviewing your insurance documents we noticed you do not have an umbrella policy. Two years ago, your insurance agent recommended you purchase this coverage. Since you will have more than the minimum coverage for both auto and home policies after the implementation of our recommendations, you are eligible for umbrella insurance.

Recommendations1. Insure Boat

To qualify for umbrella insurance, you must properly insure your boat. At an annual premium of $86, this policy will cover $5,500 for property, $300,000 for liability, and $500,000 for medical. There is a $250 deductible. You received a $10 credit because you are previous boat owners.

However, through Eric Johnsen, you are able to list your boat under the umbrella policy at a cost of $24 annually. We are recommending that you pursue this alternative due to the decreased cost.

2. Purchase Umbrella Policy

We calculated your current net worth to be slightly under $1 million. Although this may increase with the reduction in your liabilities and an increase in your assets, we recommend an umbrella policy with $1 million coverage.

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After speaking with Eric Johnsen about the PUP, this additional coverage will have an annual premium of $122. Please note this premium will be in addition to your current auto and homeowner’s premiums.

Overall, this $146 commitment to boat and umbrella insurance ensures your net worth is properly covered.

Who What When Where Why How How MuchTyler &

MiaPurchase

$1,000,000 umbrella

policy

After increasing

homeowner’s and PAP insurance coverage

Through Eric

Johnsen, or another agent of

your choice

To protect your net

worth; To insure your

boat

Meet with an agent to purchase the policy

Premium Payments:$146/ year

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Section G: Long-Term Care Insurance

OverviewLong-term care (LTC) insurance is for individuals in need of services and support spanning an extended period of time. This can mean assistance with simple daily tasks or 24-hour monitoring. The services and support can be offered in the individual’s home, an adult day care center, and nursing home. These services are not covered by health insurance, Medicare or Medicaid.

Long-term care insurance is similar to other insurance in the sense that you only receive the benefits if you meet qualifications. These qualifications are functional ability, medical necessity, or cognitive ability. If you fail at least one of these requirements you may be eligible for benefits depending on your plan’s policies.

Functional ability varies among plans and is defined as an individual’s capability to meet a predetermined amount of activities of daily living (ADL): Eating, Toileting, Walking, Bathing, Dressing and Continence.

Medical necessity is defined as an illness that requires the individual receive medical support. The insurer or an individual’s doctor determines medical necessity.

Cognitive ability is defined as an individual’s ability to perform brain-based activities. These activities range from simple to more challenging tasks.

Assumptions You are both currently in good health. Mia’s family has a history of cancer related illnesses (both parents). Tyler’s family has no major medical history problems.

Current SituationAs of now, neither of you have long-term care insurance nor there are no assets dedicated to long-term care expenses

Recommendations 1. Re-Evaluate Needs at Age 50

Because you are both under age 50, there is no real need to purchase LTC insurance at this point in time. There is no significant likelihood of needing care at an early age and for an extended time. Mia, we will keep your family’s health history of cancer related illnesses in mind when we re-evaluate this need. Please keep us apprised of any life changing events that may trigger the need for LTC insurance before the attainment of age 50.

We wanted to give you some estimates as of 2015 concerning long-term care. Nursing home expenses in the New River Valley area are currently $49,000 per year. The average age of a person entering a nursing home is 75, and the average length of stay is 6 years.

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Part I: Client PacketPart II: Financial Analysis

Part III: Tax AnalysisPart IV: Insurance Analysis

Part V: Education AnalysisPart VI: Investment AnalysisPart VII: Retirement Analysis

Part VIII: Estate AnalysisPart IX: Special Needs Analyses

Part X: Implementation & Monitoring

63

OverviewPlanning for education is a primary financial goal for many families today. With cost of education on the rise and growing at a faster rate than inflation, it is important to begin saving for this goal early on in order to take advantage of compounding interest. The more money you are able to set aside now and the faster it begins growing, the less you may need to pay in the long run. We have summarized the techniques we believe to be most relevant to your situation.

529 Savings Plans

A 529 Plan is operated by a state or educational institution and is designed to help families set aside funds for future qualified education costs at any accredited college, university, technical, vocational, or graduate school anywhere in the United States. Qualified costs include:

Tuition and fees Room and board Books, supplies, and other equipment

Nearly every state offers at least one 529 plan, but plan and corresponding benefits often vary across states.

There are many characteristics that make 529s an attractive option. There is no income limit or beneficiary age restriction associated with these plans. Beneficiary designations can easily be changed if the child decides not to attend school. Anyone may contribute to the account; contributions to a Virginia 529 plan up to $4,000 are deductible in computing Virginia taxable income, with an unlimited carryforward of excess contributions into future years. Additionally, any contributions made by taxpayers at least 70 years of age are fully deductible in the year given. The minimum amount needed to open a Virginia 529 plan is $25, with a maximum account balance of $350,000 for each beneficiary.

Another significant advantage of 529 plans is that the account owner maintains control over how the funds are invested and distributed, as well as when withdrawals should be taken and for what purpose. Furthermore, the assets within the account grow tax free, and are not taxed upon withdrawal so long as they are used for qualified expenses, or if they are attributable to the beneficiary’s death, disability, or receipt of a scholarship. In addition to saving for education, they can also be a useful estate planning tool as the balance of a 529 is not included in the account owner’s estate. Therefore, contributors may elect to accelerate their donations and give up to five times the annual gift exclusion amount ($14,000 for individuals and $28,000 for married couples in 2015) without triggering the gift tax. Individuals who choose to accelerate their funding will incur a gift tax on any additional contributions, as well as gifts to the children, made in the current and next five years.

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There are also several disadvantages associated with 529 plans, perhaps the most pronounced being that a beneficiary may decide not to attend college, or to attend a less expensive school, resulting in an overfunded account. Any earnings withdrawn for nonqualified expenses are subject to federal and state income tax, as well as a 10% penalty. Rather than taking nonqualified distributions, the owner may choose to transfer the account to another family member. Another drawbacks of these plans are the limited investment options; the account owner has a select few investments from which to choose and can only make changes within the plan once a year.

Virginia offers some exceptional 529 plans with regards to maintenance and management fees, as well as expenses associated with underlying investments. The four Virginia 529 plans1 are:

CollegeWealth: Allows account owners to save in FDIC-insured deposit accounts at participating banks or financial institutions and benefit from 529 tax advantages

Virginia 529 inVEST: State-administered 529 savings program that features a mix of mutual funds and separately managed accounts in age-based and static portfolio options

Virginia 529 prePAID: Allows parents to prepay college tuition; guarantees coverage no matter the account balance

CollegeAmerica: Advisor-sold 529 plan with 27 individual fund portfolios

Virginia 529 inVEST

The Virginia 529 inVEST plan offers a great deal of flexibility in planning for education. Within the plan, there are two types of portfolios: age-based and static. The seven age-based portfolios begin investing more aggressively when the child is at a younger age. At this time, risk is less important because there is still time to compensate for potential losses in future years. These portfolios evolve to become more conservative, mitigating the risk of not meeting the funding goal. In addition, there are nine static portfolios, some of which are aggressive, moderate, and conservative. Given that these portfolios do not evolve over time, the account holder should reallocate as needed throughout the growth period.

Expenses associated with the actively managed age-based portfolios are often somewhat higher than those of the static, but still very reasonable. As mentioned previously, the account holder retains complete control over the investments within the account. However, the investment options offered are limited and can only be changed once per year.

Roth Individual Retirement Accounts (Roth IRAs)

Contributing to a Roth IRA is a useful strategy for those who wish to save for education costs, but have a primary goal of saving for retirement. Anyone with earned income can contribute to one; however, there are income limits involved. For a couple filing Married

1 Visit www.Virginia529.com to learn more about 529 plans in the state of Virginia

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Filing Jointly (MFJ) for tax purposes, the modified adjusted gross income (MAGI) limit is $183,000 before the maximum $5,500 contribution limit begins to phase out, capping at a MAGI of $193,000. Since contributions to Roth IRAs are made with after-tax dollars, all distributions, including earnings, are tax-free after age 59 ½; distributions of contributions from Roth IRAs can be made tax free if the account has been open for at least five years. Any earnings distributed before age 59 ½ and used for qualified education expenses may be taxed, but will not be subject to the 10% early distribution penalty.

One drawback associated with using this method to fund college education expenses is that it could jeopardize the account owner’s plans for retirement. Furthermore, distributions from Roth IRAs can adversely affect future financial aid due to the increased income.

Financial Aid

There are many types of financial aid available to families in all different situations, both need- and merit-based. The first step in determining financial aid eligibility is to input information related to parent and student income and assets into the Free Application for Federal Student Aid (FAFSA). This can be done online at the Department of Education website. Once completed, a Student Aid report is sent providing the expected family contribution (EFC), which indicates the family’s expected ability to pay for college. If the EFC is lower than the cost of college, the student may be eligible for need-based aid. The four factors that influence the EFC for a dependent student are as follows:

Parents’ income: 2.6% - 5.6% Parents’ assets: 22% - 47% Child’s income: 50% Child’s assets: 20%

It is important to note that tax status and federal financial aid status are not the same; therefore, children who claim independent for tax filing purposes cannot necessarily do so for financial aid. Two of the main forms of financial aid include scholarships and loans.

Scholarships

Almost all scholarships offered in the United States are specific to individual universities or programs, but there are a number of local and national scholarships available as well. Some are given based on academic success or athletic ability, while others may be awarded based on need. While scholarships can be a helpful way to fund education, they are never a source on which families should rely.

Loans

Stafford loans can be either subsidized, meaning the government pays the loan interest for the student as long as they are enrolled at least half time, or unsubsidized, accruing

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interest from the date of disbursement. Subsidized loans are need-based, whereas unsubsidized loans are available to all students. Both offer payment deferrals so the student is not required to make any payments while attending college at least half time, as well as a six month grace period after the deferment period ends (usually when the student graduates) before repayment is required. Interest rates on Stafford loans are lower than private or alternative loans.

Assumptions The cost of tuition at an in-state, 4-year university is $21,288 (including room and

board) per year in today’s dollars. The cost of college is increasing at 4.6% per year. Tyler’s parents have offered to give $10,000 to Ben and Becky to help fund their

education. You are willing to invest in a moderately aggressive portfolio for this goal, before

Becky and Ben begin college. You would prefer to utilize a tax-advantaged method to pay for college. You wish to have all college savings accumulated before Becky and Ben begin

college. Becky and Ben begin college in 8 and 10 years, respectively, and finish in 4 years.

Current SituationWhile your primary goal is retirement at age 65, your secondary objective is to provide 100% of Becky’s and Ben’s college education. We understand that you remember reading that in-state tuition at a 4-year university will cost $10,000 per semester, including room and board in today’s dollar. This estimate of $20,000 per year is very close to the assumption stated above of $21,288, a figure provided by the State Council of Higher Education for Virginia.

There are currently no savings or assets earmarked for education. However, Tyler’s parents have offered to give $10,000 to serve as a foundation for education planning.

The projected costs of Becky’s and Ben’s education are $119,408 and $142,588, respectively.

Recommendations1. Tyler’s Parents’ Gifts to Ben and Becky

We recommend opening a Virginia 529 inVEST Plan for each Ben and Becky and having Tyler’s parents contribute their $10,000 gifts to these accounts. Doing so will allow you, the account owners, to offset your Virginia taxable income by $4,000 for each account ($8,000 per year). Contributions that exceed this $4,000 limit can be carried forward indefinitely into future years up to the full amount of the contribution. When choosing from the given investments, we suggest the age-based portfolios mentioned earlier. We believe the James River portfolio to be the right choice for Ben, investing 70% in stocks and 30% in bonds through January 2018. This asset allocation is

67

appropriate for Ben’s age; his longer time horizon before beginning college, 13 years, allows him to bear more risk than Becky. She will begin college in 8 years and so we suggest the Alleghany portfolio, which currently has a 50% asset allocation between stocks and bonds, and will continue to become more conservative as Becky ages. The minimum contribution upon opening these accounts is $25, and there is no limit to the number of accounts for each beneficiary.

2. Sell EE Bonds for Higher Return

We suggest selling your EE bonds and contributing the proceeds to Becky’s Virginia 529 inVEST Plan. Your bonds are currently worth $25,000 and earn a return of 3.5% - considerably lower than the projected returns for the age-weighted portfolios we have suggested for Becky and Ben of 5.93% and 9.42%, respectively. Investing the after-tax proceeds will result in a greater return over the time period before the children begin school than continuing to earn 3.5% on the entire $25,000.

Original investment $16,545Earnings $8,455Federal Tax ($2,114)State Tax ($486)After-Tax Proceeds

$22,400

Amount Invested Expected Return Years Growth

Alleghany Portfolio (Becky)$25,000 3.5% 8 $32,920$22,400 5.93% 8 $35,514

James River Portfolio (Ben)$25,000 3.5% 13 $39,099$22,400 9.42% 13 $72,195

Our recommendation is to allocate the full $22,400 to Becky’s plan. Since this amount exceeds the $14,000 annual gift exclusion, any further gifts to Becky this year will be subject to gift tax.

3. Earmark $37,017 of Non-Qualified Investments for Education

For a third source of education funding, we recommend removing $37,017 of assets in your non-qualified investment account to fund Ben’s education, specifically. With a projected return of about 6.5% for non-qualified assets and 9.42% for Ben’s 529 plan, considering tax implications, the projected earnings are as follows:

Contribute Assets to Becky’s 529 Earmark Assets for Future UseOriginal Investment $37,017 Original Investment $37,017Capital Gains Rate 7.5%* Earning 6.5% for 13 $83,936

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yearsCapital Gains Tax $2,776 Capital Gains Rate 7.5%*After-Tax Proceeds $34,241 Capital Gains Tax $6,295Earning 9.42% for 13 yrs.

$110,357 After-Tax Proceeds $77,641

*Considering 50% basis and 50% earnings

Growing at a projected rate of 9.42% for 13 years, this after-tax investment of $34,241 in combination with Tyler’s parents’ gift of $10,000 will be enough to fully fund Ben’s estimated cost of education.

4. Make monthly contributions to Becky’s 529 inVEST Plan

We suggest reallocating annual contributions to non-qualified accounts, which are currently $10,800, in order to make monthly payments of $562.51 to Becky’s Virginia 529 inVEST Plan. If Becky falls short of her target or Ben’s portfolio performs better than expected, assets can be transferred from Ben’s 529 account to Becky’s in order to make up the difference or avoid overfunding for Ben, thus evading the tax consequences and 10% penalty associated with non-qualified distributions.

Who What When Where Why How How MuchTyler &

MiaSell EE bonds By

year end

Your bank To fund Becky’s 529 plan

See your banker

$2,600 in taxes ($2,114 federal, $486

state)Tyler &

MiaRedeem

$37,017 of non-qualified assets

By year end

Your broker’s To fund Ben’s 529

plan

See your broker

$2,776 in capital gains

taxTyler &

MiaFund two

Virginia 529 By

year www.Virginia529.com To fund

Ben and Visit the

website to $0

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BeckyCost of college $119,408Current savings $32,400*Expected return 5.93%Years until college 8Monthly savings needed $562.51BenCost of college $142,588Current savings $44,241**Expected return 9.42%Years to college 13Monthly savings needed $0*$10,000 gift plus $22,400 from EE bonds**$10,000 gift plus $34,241 from non-qualified assetsCombined annual savings $6,750.12

inVEST plans for Ben and Becky using

proceeds from EE bonds and non-qualified

assets

end Becky’s education

learn how to begin

Tyler’s Parents

Contribute $10,000 gift to

529 plans

By year end

www.Virginia529.com To fund Ben and Becky’s

education

Visit the website to learn how to begin

$0

AlternativesIf Tyler’s parents wish to take advantage of the $4,000 state tax deduction of their contribution to the children’s 529 accounts, then they should consider opening separate accounts, resulting in two accounts for each child. Another option to fully funding the children’s education would of course be to contribute some amount to each and rely on Ben and Becky to take out loans in

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Part I: Client PacketPart II: Financial Analysis

Part III: Tax AnalysisPart IV: Insurance AnalysisPart V: Education Analysis

Part VI: Investment AnalysisPart VII: Retirement Analysis

Part VIII: Estate AnalysisPart IX: Special Needs Analyses

Part X: Implementation & Monitoring

71

Section A: Non-Qualified Investments

OverviewNon-qualified investments consist of investments that are not placed in employer provided retirement investments. These investments are considered non-qualified because they do not qualify for tax-free growth that retirement investments realize.

As these investments are not held in retirement accounts, there is a lot more flexibility in regards to how those assets are used. Therefore, these investments are often used to fund special goals outside of basic retirement needs.

As risk tolerance and risk capacity often differs for non-qualified investments in comparison with retirement assets, it is possible to apply a different allocation strategy to non-qualified investments in order to reach specific goals.

Key Terms Inflation: Increase in price of general goods and services. Reallocate: Take asset from one investment and move it to another investment. Present Value: What something costs in today’s dollars. Future Value: What the present value in today’s dollars will grow to in the future. After-tax rate of return: Rate of return that is weakened by tax implications such

as dividend and capital gains taxes.

Assumptions The universal inflation rate is 3%. After-tax rate of returns. Dividends and capital gains will be reinvested into non-qualified accounts. Will fund art gallery with non-qualified investment. Will fund home additions with non-qualified investment. Using a lump sum distribution from non-qualified investment for education

savings. Will be using moderately aggressive strategy. Goals will be funded at retirement age of 65.

Current Situation PortfolioAs of now, you have a non-qualified investment balance of $163,000 and you are earning an after tax return of 5.94% annually, which is lower than you would like. According to the risk assessment questionnaire you have both filled out, you both prefer investments that are typically more conservative. However, we are also aware that you are willing to invest more aggressively in order to achieve a higher return in order to fund Mia’s art

72

gallery and home addition goals. When evaluating your portfolio allocation against a moderately aggressive investing strategy, your allocations are not where they need to be.

InvestingYou are currently investing $10,800 annually into other mutual funds to be used for any purpose. In addition to your contributions, any dividends and capital gains you are realizing are being reinvested into your non-qualified accounts.

GoalsThere are several goals you have mentioned that can be fulfilled using non-qualified investments.

One major goal of yours that can be satisfied by using non-qualified investment assets is your desire to fund 100% of your children’s education costs. After accounting for the children’s’ grandparents $10,000 contribution to each child’s education fund there is still an additional education savings need of $119,408 for Becky and $142,588 for Ben.

Mia’s desire to open an art gallery and to add an addition to the house for her art can also be funded using non-qualified investments. If retirement is taken at age 65, the art gallery will require $186,029 at retirement, and the home improvement addition will require $74,411 at retirement.

RecommendationsPortfolioAs mentioned you do not currently have an investment allocation appropriate for a moderately aggressive portfolio. Therefore in order to realize a more desirable rate of return within an acceptable volatility range, $104,800 in stocks need to be reallocated. While this strategy will be beneficial in the long run, it will have some steep capital gains tax implications in the meantime.

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68.71%

4.91%

26.39%

Current Non-Qualified Allocations

Large Cap Mid-Cap Small-Cap Bonds

Standard Deviation 16.42%After-Tax Return 5.94%

Who What When Where Why How How MuchTyler &

MiaReallocate Holdings

Within 1

month

Non-qualified accounts

Increase return

Give us consent

$104,800

Alternative: Do not reallocate assets to avoid capital gains tax and stick with current rate of return.

GoalsIn order to meet the goal of funding both of your children’s education, as discussed in the education section of this plan, we recommend that you sell your EE bonds as well as $12,017 of other funds and place the full amount in a college savings plan. However, this lump sum will not be enough money to cover all education costs, so we also recommend that you invest $562.51 monthly into college savings plans for your kids, rather than invest that amount in other non-qualified assets.

Who What When Where Why How How MuchAdvisor

sSell EE Bonds Tomorrow 529 account Education

savingsLump Sum

$25,000

Tyler and Mia

Invest monthly amounts for education

Beginning of each month

529 account Education savings

Do not fund non-qualified

investment

$562.51

Alternative: Increase monthly payments to reduce amount of lump sum needed.

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35.93%

26.05%

14.38%

23.64%

Recommended Non-Qualifed Al-locations

Large Cap Mid-Cap Small-Cap Bonds

Standard Deviation 15.49%After-Tax Return 6.17%

Section B: Qualified Investments

OverviewQualified investments consist of investments that are placed in employer provided retirement investment accounts. These investments are considered qualified investments because they qualify for certain tax benefits not recognized by non-qualified investments. These accounts grow tax-free, meaning that as long as distributions are not taken and any capital gains or dividends are reinvested in other qualified investment accounts, there will not be any taxes incurred. This tax-free growth allows for substantially better returns in comparison with identical non-qualified funds.

In addition to the tax free growth, some qualified investments such as traditional IRAs and 401(k)s allow for tax-deductible contributions. These contributions are taken out of the participant’s income before taxes are calculated thus reducing taxable income which further reduces tax liability. Distributions on tax-deductible qualified investments are taxed using ordinary income tax rates. Roth IRAs on the other hand do not allow for tax-deductible contributions, but allow for tax-free distributions as long as the distributions meet certain requirements.

Regardless of whether or not a qualified investment is tax-deductible or not, distributions from these investments will incur penalties if taken before the age of 59 ½ except for certain qualified expenses.

Key TermsPre-tax rate of return: Rate of return that grows without incurring taxesAnnuity: A fixed sum of money that is paid out each year.

Assumptions The universal inflation rate is 3%. Pre-tax returns. Dividends and capital gains will be reinvested into qualified investment accounts. Will use a moderately conservative investment allocation until retirement. Will use a conservative investment allocation once in retirement. Assets will be used for retirement needs. Expected retirement age of 65.

Current Situation PortfolioCurrently you have a qualified investment balance of $479,750 and you are earning a pre-tax return of 6.55% annually. According to the risk assessment questionnaire you have both filled out, you currently should fall in the moderately conservative category in regards to investment strategy. However, when evaluating your current investment allocation in qualified accounts against our firm’s moderately conservative investment strategy, your allocations do not fit within the suggested strategy for moderately

75

conservative allocations. In addition to your off-balance investment allocations, your pre-tax return of 6.55% is lower than should be expected.

Investing

Current Value Contribution Amount Employer

ContributionTyler’s Investment Choices:Fidelity International Discovery, FIGRX

$79,000 3% of base salary

CGM Realty, CGRMXU.S. Global Investors Gold & Precious Metal, USERX

$60,400

$63,600

2% of base salary, invested 50/50 in these

two funds

3% (100% match on the first 3%)

Mia’s Investment Choices:T Rowe Price New Horizons, PRNHX

$15,250 6% of salary 3% (50% match on the first 6%)

You are currently investing $3,300 a year in the Potsdam annuity for retirement purposes. This annuity has surpassed its guaranteed payment term and you will not incur any penalties at this point if you cease funding it or even remove your assets from this annuity. The Potsdam annuity is currently earning a very low rate of return.

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0.2126

0.0318

0.33250.1326

0.1259

0.1646

Current Qualified Allocations

Large Cap Mid-Cap Small-Cap Bonds

Commodities Real Estate International

Standard Deviation 13.85%After-Tax Return 6.55%

Tyler, you are contributing 5% of your base salary to your 401(k), and your employer is contributing a 100% match on the first 3% of your base salary that you are contributing. This means that you are currently contributing $5,245.5 and your employer is contributing an additional $3,147. Both these amounts will grow as your salary grows.

Mia, you are contributing 6% of your base salary to your retirement investment assets, and your employer is matching 50% of your first 6% contribution. This means that you are currently contributing $3,245.76 and your employer is contributing $1,622.8 and this will grow as your salary grows as well. In addition to your contributions, any dividends and capital gains you are realizing are being reinvested into your accounts.

GoalsYou are both doing a good job in regards to saving for retirement. You are currently on track to meet your retirement needs if you retire at age 65, as is discussed in the retirement section of this plan.

Recommendations1. Reallocate Investments

As you know, you are earning a lower rate of return on your retirement assets than you would like. In order to achieve a greater return it will be necessary to reallocate your assets. Furthermore, when assets within qualified investments are reallocated to other qualified investments, no tax is incurred on the transfer. Therefore our first recommendation is for us to reallocate your investments while implementing a moderately conservative investment strategy.

Another recommendation of ours is for you to stop funding your Potsdam Annuity and transfer balance to the Bostonian Variable Annuity. As this transfer qualifies as a 1035 exchange, no taxes will be incurred on the transfer. Furthermore, the Bostonian Variable Annuity can be placed in any available qualified assets.

Who What When Where Why How How MuchAdvisor

sSell EE Bonds Tomorrow 529 account Education

savingsLump Sum

$25,000

Advisors

Transfer Annuities

Tomorrow Bostonian Variable Annuity

Increased return

1035 exchange

$125,000

77

Standard Deviation 13.95%After-Tax Return 7.98%

Alternative: Rather than fund an annuity, put money towards a Roth IRA.

Part I: Client Packet78

35.23%

24.91%

15.69%

24.18%

Recommended Qualifed Allo-cations

Large Cap Mid-Cap Small-Cap Bonds

Commodities Real Estate International

Part II: Financial AnalysisPart III: Tax Analysis

Part IV: Insurance AnalysisPart V: Education Analysis

Part VI: Investment AnalysisPart VII: Retirement Analysis

Part VIII: Estate AnalysisPart IX: Special Needs Analyses

Part X: Implementation & Monitoring

Overview

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Even as you consider other savings objectives, it’s important to continue saving for retirement. Summit Financial Advisors defines retirement planning as the process of helping our clients develop strategies for asset accumulation and distribution, as well as monitoring of the plan’s progress. Effectively accomplishing this will entail integrating your situational factors with assumptions and strategies that are most likely to achieve your desired outcome.

Each generation is living longer than their ancestors, while also bearing more of the funding and investment burden for retirement. In this environment, the challenge of accumulating sufficient savings has never been greater. As previously exhibited, obtaining your optimal strategy does require some proficiency in investment management, as well as a knowledge of the Social Security Administration (SSA) and the numerous benefits offered, most commonly retirement benefits and Medicare. Additionally, superior planning demands a thorough understanding of the Internal Revenue Code (IRC) and Internal Revenue Service (IRS) as they pertain to qualified (employer-sponsored) and other tax-advantaged plans. Our goal is to ensure that our clients are able to live the lives they desire during the years they have worked so hard to enjoy. Persistent focus on retirement savings goals, while examining associated costs, tradeoffs, and time horizons can be a daunting task.

Careful considerations of numerous variables, including but not limited to the following, are innate in developing an optimal strategy:

Comfortability leaving the workforce Desire to work or volunteer during retirement Personal and leisure activities Level of health Satisfaction with living arrangement Level of needed freedom and flexibility Support received from or given to other family members Legacy goals

Social Security – Retirement Benefits

Almost all working Americans are eligible for Social Security. Reduced benefits may be collected as early as age 62, and those who work beyond their Normal retirement Age (NRA) will receive a special scheduled increase in benefits for each year delayed up to age 70 (see table below). The Social Security Administration derives a worker’s benefit in retirement by computing the average indexed monthly earnings (AIME), so that it may calculate an individual’s primary insurance amount (PIA). PIA is then reduced or increased to account for when an individual decides to begin receiving benefits. The difference between retiring and receiving Social Security benefits at age 62 vs. age 70 varies from 70% - 124% of PIA.

The following are your current Social Security benefits:

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TylerRetirement Age Year Monthly Benefit62 and 1 month 2033 $1,77567 2038 $2,57970 2041 $3,232

Social Security – Medicare

Medicare is a federal health insurance program for people age 65 and over, along with many disabled people. It is important to note that whether an individual is retired or not has no bearing on their eligibility.

Hospital Insurance (part A), Medical Insurance (part B), Medicare Advantage Plans (part C) and Prescription Drug Coverage (part D) are all benefits offered by Medicare. The Original Medicare plan is parts A and B. You must be eligible for part A or enrolled in part B to be eligible. Lastly, instead of enrolling in Original Medicare, you may select part C as an alternative to obtaining Medicare benefits. This option includes managed care plans familiar to the private sector such as HMOs, PSOs, and PPOs.

We will be happy to assist you with your Medicare Plan selections when you approach retirement age. Qualified and Tax-Advantaged Accounts

The advantages of qualified retirement accounts cannot be overlooked. These accounts are advantageous to non-qualified accounts and other savings vehicles for numerous reasons. Eligible contributions to these accounts are made on a pre-tax or tax-deductible basis. Given that distributions from your retirement accounts are not expected for at least 20 years, there’s great potential for significant investment growth.

Descriptions of these accounts are provided below. We will address relevant strategies and funding decisions concerning your retirement accounts later in this section.

401(k)

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MiaRetirement Age Year Monthly Benefit62 and 1 month 2033 $1,24667 2038 $1,83270 2041 $2,309

Employee contributions up to $18,000 annually (2015). A “catch-up” provision of an additional $5,000 exists for employees over age 50

An employer may contribute up to 25% of covered compensation, up to $265,000 All contributions are pre-tax and taken from paycheck as this is a type of

“deferred-compensation plan” All earnings in the account grow tax-deferred All contributions and earnings within the account will be taxed as ordinary

income upon distribution Withdrawals from the account may begin after age 59½; however, by age 70½

required minimum distributions (RMD) must be taken from the account in order to avoid tax penalties

In-service withdrawals are permitted after 2 years enrolled in the plan, but will be subject penalties

A 401(k) plan can also include a Roth feature, which allows the contribution of after-tax dollars that will be received tax-free upon distribution

Traditional IRA Individual contributions cannot exceed the greater of 100% of earned income or

$5,500. A “catch-up” provision of an additional $1,000 exists for individuals over age 50

Contributions are tax-deductible, if within income limits. For joint filers contributions are fully tax deductible if joint adjusted gross income (AGI) < $98,000, partially deductibility for AGI levels of $98,000 to $118,000, and no deductibility for AGI levels exceeding $118,000.

All earnings in the account grow tax-deferred All contributions and earnings within the account will be taxed as ordinary

income upon distribution Distributions from the account may begin after age 59½; however, by age 70½

contributions to the account must stop and required minimum distributions (RMD) must be taken from the account in order to avoid penalties

Roth IRA Individual contributions cannot exceed the greater of earned income or $5,500. A

“catch-up” provision of an additional $1,000 exists for individuals over age 50. The maximum contribution may be made if married filing jointly filer MAGI does

not exceed $183,000. Joint filers may only make a partial contribution between MAGI levels of $183,000 and $193,000.

Contributions are made on an after-tax. All earnings in the account grow tax-deferred. Qualified distributions of regular account contributions may begin after the

account is open for five years. Distributions of earning may be made after age 59½, made to estate or beneficiary

of owner upon death, made to owner after qualifying as disabled, distribution used to pay for qualified first-time homebuyer expenses (up to $10,000).

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Earnings from qualified distributions taken before age 59½ will not be included in gross income for federal income tax purposes

Contributions to the account may be made beyond age 70½, and there is no required minimum distribution (RMD) to be taken from the account in order to avoid penalties

Retirement Capital Needs Analysis

Summit Financial Advisors uses this tool to help our clients understand how allocating assets and saving money can influence the amount of income and assets available during retirement. Time value of money formulas are used to project the future value of current income, investment assets, and expenses in retirement. Almost all inputs are derived from the client’s cash flow statement and balance sheet, estimates of Social Security income, and the following mutually agreed upon assumptions.

Assumptions Live with a relatively high level of financial satisfaction. Normal retirement age: 67 years old Desired retirement age: 65 years old Inflation rate: 3% In retirement, Mia would like to add a small addition to their home for an art

studio at a cost of $40,000 (in today’s dollars). In retirement, Mia would also like to open a small art gallery at a cost of $100,000

(in today’s dollars). If the business built value, the proceeds would go to the children or charity. You will need approximately 80% of current earning before-tax income (in

today’s dollars) when you retire. You wish to take Social Security benefits at the earliest opportunity. Average rate of return for qualified retirement accounts pre-retirement: 7.75%. Average rate of return for qualified retirement accounts post-retirement: 6.5%. Marginal Tax Rate in Retirement: 25%. All interest earned, dividends, and capital gains are reinvested. Payments from Potsdam Fixed Annuity will begin at retirement. Non-Qualified assets are not included in projections.

Current Situation You have both expressed a strong desire to retire at age 65, but understand that it may not be realistic given today’s economic environment. You each have talents and dreams that you would like to pursue during your retirement; this is extremely important to leading a fulfilling lifestyle. As of now, Tyler, your retirement plan it to teach aspiring young golfers on a volunteer basis. Mia, you would like to build a small addition to your home to fill with art, at a cost of $40,000 if built today. Additionally, you would like to open a small art gallery in downtown Radford, at a cost of $100,000 if opened today. The net revenue from the gallery will be donated to local youth groups as a means to enhance creative learning. While neither of you have a strong desire to travel in retirement, we want to commend you on planning for retirement goals so thoroughly. While it may be

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difficult to make plans twenty years in advance, creating these goals is key to achieving a meaningful retirement. Occasional trips to visit your children, if they are not living nearby, are the only travel plans you wish to plan for. Overall, you wish to be self-sufficient in retirement without needing to depend on your children.

The funds below are being currently used to fund your retirement objectives. Within in your respective 401(k) plans, you are allowed to invest in a limited number of mutual funds. Our firm tracks these funds on a regular basis, and reallocation recommendations are addressed in the investment section of this plan. Keep in mind that 401(k) plan deductions are not taken from bonus payments, as the employer does not match these.

Current Value Contribution Amount Employer

ContributionTyler’s Investment Choices:Fidelity International Discovery, FIGRX

$79,000 3% of base salary

CGM Realty, CGRMXU.S. Global Investors Gold & Precious Metal, USERX

$60,400

$63,600

2% of base salary, invested 50/50 in these

two funds

3% (100% match on the first 3%)

Mia’s Investment Choices:T Rowe Price New Horizons, PRNHX

$15,250 6% of salary 3% (50% match on the first 6%)

Other retirement assets held outside of your 401(k) plans, stated at Fair Market Value, include:

Description Current ValueTyler’s Traditional IRADodge & Cox Stock, DODGX $52,000

Mia’s Rollover IRAVanguard GNMA, VFIIXVanguard Growth & Income, VQNPX

$34,500

$50,000Mia’s Conservative AnnuityPotsdam Fixed Annuity $125,000

Additionally, systematic savings outside of qualified retirement plans include Mia’s monthly contributions of $275 toward the Potsdam Fixed Annuity.

The Wage Replacement Ratio (WRR) is an essential part of estimating how much your costs will be in retirement. There is no clear consensus within the profession as to what is considered an ideal WRR. In reality, this number should not be standardized, but must be

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calculated according to assumptions and the clients’ needs. No longer having to save for retirement, pay FICA tax, or support your children can significantly reduce WRR. In your case, Tyler and Mia, WRR will automatically be reduced to approximately 70%. Conversely, current healthcare costs are expected to rise at approximately double the rate of inflation. Today, estimated cost of healthcare throughout retirement for a healthy couple retiring at age 65 ranges from $350,000 – $450,000. When annually inflated until your retirement (consensus ranges from 5% - 7%), approximately an additional 9% - 10% is required to be added back to your WRR in retirement. An 85% WRR is a somewhat conservative estimate, though still appropriate for consideration given your goals and objectives. However, it is also feasible to suggest that your required WRR in retirement will only be 80%. This will be reflected in both the recommendations and alternatives. The following Capital Needs Analysis reflects your need in retirement compared to available income and assets, as well as goals and assumptions. Given a Wage Replacement Ratio of 85%, per your assumption, there will be a shortfall in retirement assets.

Current Household Earned Income 164,300Estimated Future Marginal Tax Bracket 25%Retirement Age 65Years Until Primary Earner Retirement 21Annual Anticipated Inflation Rate 3%Annual Anticipated Salary Growth Rate 3%Projected Salary (Earned Income) at Retirement $305,646

Pre-Tax Return Portfolio Average User-defined (After Reallocation)Pre-Retirement Return 7.46% 7.98%Post-Retirement Return

0.00% 6.50%

Wage Replacement Ratio (WRP) 85%Age to begin Social Security Benefit 65Social Security Combined Annual Benefit at age 65

$45,839

Primary Earner Age at Death 100Total Years in Retirement 35

First Year Need in Retirement $174,525

Future Value of Current Retirement Savings $3,281,122Total Savings Need in Retirement $3,661,607

Surplus or Shortfall in Retirement $(250,083)Required Additional Savings for Retirement from Non-Retirement Savings

$ 5,919 Annually

Recommendations

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Given all desired inputs as outlined in this section, there is currently a $250,083 shortfall. To address this shortfall in assets, we have some recommendations that can be implemented to fulfill your needs:

1. Cease Funding of Potsdam Fixed Annuity

Mia, you should cease funding your fixed annuity. There is no penalty for stopping your contributions to the account; merely the amount available for distribution in retirement will be reduced. Although earnings in this vehicle grow tax-deferred, contributions to this account are not tax deductible and distributions will be taxed as ordinary income.

As addressed previously, the Bostonian Variable Annuity provides numerous advantages over the Potsdam Fixed Annuity. However, more can be done to improve this strategy. Instead of immediately funding the Bostonian Variable Annuity, these funds should be used to fund a Roth IRA. Although funded with after-tax dollars, eventual distributions from a Roth IRA will not incur any tax consequences. In addition, the amount of investment options within a Roth IRA will allow you to achieve a return similar to the Bostonian Variable Annuity. Of the funds that we recommend, Vanguard Growth and Income Fund Investor Shares (VQNPX) is the most suitable for your needs. In 2015, up to $5,500 can be contributed to the account annually. In five years the amount you are eligible to contribute to this account will be reduced to $2,492 as a result of your projected increase in income. After 6 years you will no longer be eligible to fund this account.

Once Roth IRA contributions are first initially and then totally phased out, your $3,300 contribution may be directed back into the Bostonian Variable Annuity or distributed into a new traditional IRA. Contributions to either account will be ineligible for a tax-deduction. Your current income is already too high to deduct contributions to a traditional IRA.

2. Retire at Age 65 (assuming 80% WRR)

Tyler and Mia, our conclusion is that your retirement and collection of Social Security benefits should begin at age 65. Your calculated combined annual Social Security benefit at Normal Retirement Age (NRA) or age 67, otherwise known as annual PIA, is $52,932 in today’s dollars. When benefits are collected at age 65, this value decreases to $45,839. Mia is ineligible to receive an additional spousal retirement benefit, due to the fact that her PIA is greater than half of Tyler’s. The $70,546 surplus in retirement, combined with the remaining balance of non-retirement investments, will provide a modest estate for your children. We recommend an 80% WRR, and will continually monitor the latest findings on projected healthcare costs and reduced expense in retirement.

Retirement Outlook with Recommendation, calculated with 80% WRP

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Current Household Earned Income $164,300Estimated Future Marginal Tax Bracket 25%Retirement Age 65Years Until Primary Earner Retirement 25Annual Anticipated Inflation Rate 3%Annual Anticipated Salary Growth Rate 3%Projected Salary (Earned Income) at Retirement $305,646

Portfolio Average User-defined (After Reallocation)Pre-Retirement Return 7.46% 7.98%Post-Retirement Return

0.00% 6.50%

Wage Replacement Ratio (WRR) 80%Age to begin Social Security Benefit 65Social Security Combined Annual Benefit at age 65

$45,839

Primary Earner Age at Death 100Total Years in Retirement 35

First Year Need in Retirement $159,243Future Value of Current Retirement Savings $3,411,523

Total Savings Need in Retirement $3,340,978Surplus in Retirement $70,546

Required Additional Funding of Retirement Accounts $0

As exhibited in the initial retirement capital needs analysis, a shortfall of $250,083 exists over the course of retirement assuming 85% WRR. Of the $10,800 in current annual savings for non-retirement accounts, portioning $5,918 of these savings as earmarked for additional retirement savings will eliminate any shortfall in retirement. If this alternative is executed, assets will be depleted over the course of retirement and only a limited legacy will be available for the benefit of your children.

Alternatives1. Retiring at Age 67 (NRA)

Delaying retirement and collection of Social Security until NRA of 67 provides numerous advantages. The $7,903 annual difference in Social Security benefit is substantial for two reasons. First, the two extra working years is time in which retirement assets aren’t being depleted and can continue to grow. Second, the benefit received from Social Security at NRA of 67 instead of age 65 is approximately fifteen percent larger. This further reduces the need to deplete portfolio assets. You have expressed to us a desire to retire at age 65, but are willing to consider delaying especially if necessary to fund other needs. This is a difficult decision with long-reaching implications; however, ultimately we feel this is a

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viable alternative to satisfy your goals. Leaving a respectable estate for your children, insulating yourself from unexpected costly emergencies or events, and limiting the reduction of your retirement assets were all considered.

Delayed Retirement Until NRA, Calculated with 80% WRRWage Replacement Ratio (WRP) 80%Age to begin Social Security Benefit 67Social Security Combined Annual Benefit at age 65

$52,932

Primary Earner Age at Death 100Total Years in Retirement 33

First Year Need in Retirement $154,942

Future Value of Current Retirement Savings $4,036,641Total Savings Need in Retirement $3,149,570

Surplus or Shortfall in Retirement $887,071Required Additional Funding of Retirement Accounts $0

Delayed Retirement Until NRA, Calculated with 85% WRPWage Replacement Ratio (WRP) 85%Age to begin Social Security Benefit 67Social Security Combined Annual Benefit at age 65

$52,932

Primary Earner Age at Death 100Total Years in Retirement 33

First Year Need in Retirement $171,115

Future Value of Current Retirement Savings $4,036,641Total Savings Need in Retirement $3,479,138

Surplus or Shortfall in Retirement $557,503Required Additional Funding of Retirement

Accounts$0

2. Retiring at Age 62

We understand you’d like to begin collecting social security benefits at the earliest possible date. However, due to the retirement earnings limitations test, your earnings in your working years between age 62 (the earliest you can receive benefits) and retirement would eliminate any possible early Social Security benefit. Applying for Social Security retirement benefits at any point before leaving the workforce will eliminate the benefit. For 2015, $1 in benefit is reduced for every $2 earned in excess of $15,720. This reduction in benefits isn’t permanent. In this instance the SSA recalculates your PIA at

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NRA, as if you had delayed benefits. However, ultimately this is less effective than simply waiting to begin collecting Social Security retirement benefits until you retire. If you were to retire and begin collecting benefits at age 62 with 80% WRP, a shortfall of $874,830 will exist over the course of retirement. Eliminating this gap would entail investing $27,044 annually in non-retirement accounts. This is more than twice the current annual savings amount for non-qualified or non-tax-advantaged investments. Funding this need would surely compromise short-term goals and other savings needs.

Who What When Where Why How How

MuchMia Roth

fundingImmediatel

yAt our office Tax-

advantaged growth

Fill out a new

account form out our office

$5,500 for the first 5

years; $2492

phased out contributio

n year 6Tyle

r and Mia

Collecting Social Security benefits

Age 65 Visit www.SSA.gov/retire/apply.html ; We can help you with this at our office

Aligns with the client’s

goals and objectives

You can complete

an applicatio

n for retirement benefits online

Projected Social

Security benefit at retirement in today’s dollars is $45,839

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Part I: Client PacketPart II: Financial Analysis

Part III: Tax AnalysisPart IV: Insurance AnalysisPart V: Education Analysis

Part VI: Investment AnalysisPart VII: Retirement AnalysisPart VIII: Estate Analysis

Part IX: Special Needs AnalysesPart X: Implementation & Monitoring

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OverviewEstate planning involves making decisions about the accumulation, preservation, and ultimate distribution of assets, in addition to planning for other end-of-life decisions, such as custodial and guardianship situations for incapacitation or minor children. Effective estate planning can satisfy several objectives, including the maximization of your financial assets through savings on taxes and estate settlement costs, privacy protection, ensuring that your legacy goals are achieved, and peace of mind knowing that your final financial and life wishes will be enacted. Our objective in planning for your estate is to ensure that you achieve your goals upon passing in the most tax efficient and cost-effective manner, while providing your loved ones with the information and support necessary to carry out your last wishes as easily as possible.

The Estate

The gross estate is the fair market value (FMV) of everything owned at the time of passing, including any property in which the person had some interest. Some assets, such as life insurance policies, are included in one’s gross estate if ownership is transferred within three years of the date of passing.

Examples of items included in gross estate: Cash and securities Real estate Revocable trusts Business interests Life insurance proceeds payable to the estate or heirs Value of certain annuities payable to the estate or heirs Trusts or other interests established by the decedent or others in which the

decedent had certain interests or powers The federal estate tax is a levy on the right to transfer property upon passing and is based on the value of one’s taxable estate at that point in time. The taxable estate is reached by subtracting certain deductions from the gross estate. Examples of these include the marital and charitable deductions, both of which are unlimited, meaning that any property passing outright from the gross estate to a surviving spouse or qualifying charity is exempt from estate tax. The decedent’s debt and mortgage – or half of the mortgage if co-owned with spouse – as well as administration expenses of the estate and losses during estate administration can also be deducted when determining taxable estate. After applying all relevant deductions, the amount of an individual’s estate exceeding the federal estate tax exemption, $5.43 million for 2015, is used to determine the amount of estate tax owed.

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In addition to the estate, there may be tax consequences associated with income in respect of a decedent (IRD). IRD refers to any income that the departed was entitled to receive prior to their passing but was not received until after. A common example is in the case of a last paycheck. IRD items are included in the deceased’s gross estate and taxed to the beneficiary, or the person who receives the benefit, at their marginal tax rate. The beneficiary might be able to deduct their portion of any estate taxes generated by the inclusion of the IRD.

Documents

A will is a document written to direct the distribution of one’s property upon passing, and a codicil is an attachment or amendment to an existing will. To pass intestate means to not leave a valid will, whereas to pass testate means to have a valid will in place at death. After the testator, or person to whom the will belongs, passes, the document becomes public record. Having a will, however, does not protect one’s estate from being subject to the often lengthy and expensive probate process, wherein the court validates the will and oversees the distribution of assets as described therein. The process begins when the executor named by the will contacts the court and is officially approved to carry out the decedent’s wishes as outlined in their will. An executor can be your spouse, siblings, or non-family members. If there is no named executor, the court has the authority to appoint a representative to administer the estate. The executor then must file the appropriate documents with the court, prepare a list of the deceased’s assets, notify the appropriate parties of their passing, and pay their debts and file necessary tax returns. The entire length of the process typically takes about a year to complete and can cost anywhere between 4% and 10% of the value of the estate. Fortunately, there are some useful strategies that will allow some assets to bypass the probate process.

The will should also name a guardian and alternate guardian for minor children, who would be placed in their care in the case of their parents’ passing or incapacitation. Anyone can be appointed guardian for minor children, and the person or people chosen do not have to be the same for each child. However, choosing someone out of state will prolong the process and incur additional effort and fees upon the guardian. If a non-resident of the state is chosen, then a temporary local guardian should be named to care for the children until the process is complete. The emotional ramifications of appointing non-family members should also be taken into consideration, and the necessary parties should be aware of the choice and reasoning of guardianship decisions.

In addition to standard wills, there are several other important documents to have in place in preparation for parting or incapacitation. Incapacity is defined as the lack of ability, legal standing, legal power, or the inability to plan, delegate, provide for, or manage one’s legal and financial affairs. In the case of an illness, accident, or advanced age, an Advanced Medical Directive outlines an individual’s preferences for medical care through a living will and a power of attorney. The living will is a written statement detailing the type of care one wishes to receive (or not receive) upon becoming incapacitated, whereas a power of attorney (medical or financial) legally appoints a person to act for the incapacitated individual regarding medical and/or financial affairs.

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The power of attorney may be given to any trusted individual and can be changed at any time.

A crucial inclusion in estate planning is the informal letter of last instruction. This document is written to a significant other, usually the spouse, to provide directions regarding the execution of one’s will and is one of the most helpful things to provide for loved ones in case of one’s passing. The letter of last instruction provides the surviving family with information needed concerning personal and financial matters. Areas addressed here often include a list of people to notify, funeral arrangements, location of personal papers and other personal items, financial accounts, and any other information the survivors may need to fulfill the wishes of the deceased.

Trusts

A trust is a fiduciary relationship in which one party, known as a grantor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. A contingent beneficiary receives the interest in the case that the primary beneficiary is no longer living at the time the assets are to be distributed, and a remainder beneficiary may be named to receive the remaining interest once all others have been exhausted. Trusts can either be funded during life, a living trust, or upon the event of one’s passing, a testamentary trust. Furthermore, living trusts can be either revocable, allowing the grantor the ability to modify or revoke the trust, or irrevocable, in which case the grantor retains no right to revoke or modify the trust. Either type of trust can avoid probate, but each has a separate tax implication.

Because the grantor retains the right to reverse or amend a revocable trust, all income generated by the property held in the trust is taxable to the grantor and will be included in their gross estate. Additionally, any assets that are transferred into the trust via the terms of a will are subject to probate. In contrast, an irrevocable trust does not allow the grantor the right to reverse or amend it once established. Therefore, the assets are out of the grantor’s control and are typically not included in their gross estate except for special circumstances, such as when they retain the right to trust income or use or enjoyment of property. Upon creation of an irrevocable trust, the grantor is considered to have made a gift and may be required to pay federal gift tax on these assets. Furthermore, a trust is a separately taxed entity, and is required to file a Form 1041 with the IRS any year it has taxable income or gross income of $600 or more. A trust that is not required to pay out all income earned annually, called a complex trust, receives a personal exemption of $100 when calculating its taxable income.

Custodial Accounts

One alternative to a trust is a Uniform Gift/Transfer to Minors Account (UGMA/UTMA). These accounts can be used to save for education or to provide for heirs in the case of death. Gifts to these accounts are owned by the child and are therefore irrevocable and may be taxed at the child’s tax rate. Unlike a trust, these accounts do not ensure that the assets gifted will be put to use for the donor’s intended purpose; a custodian manages the

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account until the child reaches the age of majority, at which time they have complete control over how the assets are used. Furthermore, only one child can be listed for each account.

Ownership

One useful method in avoiding the probate process is to list co-owners of assets. Before discussing ownership, we must first differentiate between possessions versus property with respect to the law. Possessions are generally personal items such as jewelry, electronics, clothing, and other household belongings that typically do not have a formal document of ownership or formal means of transfer. Property, on the other hand, is formally deeded or titled, and can be subdivided into personal property, which can be moved, or real property, which is permanently attached to land.

Adding an individual to the title of an asset, such as a vehicle, can be an effective way to avoid probate. However, one must be aware of the potential tax consequences that can arise. When someone is added to the title of a property, the IRS considers it a taxable gift to the new owner equal to the fair market value of their new ownership position, so long as the person giving the property does not expect to receive something of at least equal value in return. Every individual is allowed to gift up to the annual gift exclusion amount, $14,000 in 2015 ($28,000 if combined with spouse), but must pay a gift tax on the amount that exceeds this limit.

Land and other properties may be jointly owned between spouses or other individuals in a couple of different ways to avoid probate. Joint Tenants with Right of Survivorship (JTWROS) is a type of ownership that may be used by two or more individuals where ownership is equal among all holders and passes automatically to the survivors upon one owner’s passing. Ownership can be terminated by loss of a life, mutual agreement, or divorce. Tenancy by the entirety is an ownership designation that can only be used by married couples in which the interest passes automatically to the surviving spouse. Since the premise of this form of ownership is that each spouse owns the entire property, it is protected from each individual spouse’s creditors and can only be accessed by creditors with claims against both spouses. In the state of Virginia, all property acquired by a married couple after the official date of the marriage is considered marital property and is subject to the laws of property division by the courts upon the loss of a spouse or divorce. In the event of divorce, tenancy by the entirety automatically becomes tenancy in common, losing the right of survivorship.

Another way to transfer assets to loved ones is with the use of payable-on-death (POD) bank accounts and transferable-on-death (TOD) security registrations. POD and TOD designations can be changed at any time and do not provide the individual listed a right to the assets until the passing of the owner. Virginia also allows vehicle owners the option of naming a beneficiary on their certificate of registration to inherit their vehicle upon passing. The same as with PODs and TODs, the beneficiary named has no rights to the vehicle as long as the owner lives.

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Co-owning assets with a spouse or other individual can be an effective way to transfer assets and avoid probate, but there may also be some negative consequences involved. For example, co-owning all assets with a spouse usually transfers these assets directly to the surviving spouse’s estate upon the loss of the first spouse. This could result in an increase in federal estate tax due at the surviving spouse’s passing that might have otherwise been avoided.

Current SituationAs it currently stands, you are each other’s sole beneficiary on your life insurance policies, with no other beneficiaries listed. This means that in the case of a fatal accident in which both of you are involved, your life insurance benefits payable will become part of your individual estates, subject to probate and distributed as the court sees fit. Ben and Becky currently have no right or access to the benefits of these policies. Additionally, in the case of Mia’s passing, all assets solely owned by her, including her diamond ring and matching watch band, china cabinet, antique china, and her late mother’s harp, will also be included in her estate and subject to probate, thus becoming public record.

The Sweetheart Wills you have in place now leave everything to the surviving spouse in the case of one’s passing. While this may accomplish your asset transfer goals, it does not ensure your family’s privacy or the financial security of Ben and Becky in the case of both of your passing. Any assets transferred via a will may take months to pass through probate and be received by the intended parties. On the other hand, all jointly owned assets, which for you include your home, vehicles, boat, investment assets, and other household furnishings, will pass to the surviving spouse upon loss of life, who then becomes the sole owner.

Since Mia’s older sister, Barbara, is currently listed as Becky’s guardian in your wills, Becky would be placed in her care should you both pass. However, there is no appointed guardian for Ben, seeing as the wills you have in place now were created before he was born and have not been amended to include one.

RecommendationsWe recommend first implementing some crucial estate planning documents. Specifically, we suggest constructing the following:

New wills Living Wills Durable Powers of Attorney (Healthcare and Financial) Living Trust Letters of Instruction

In order to draft the first four documents, you will need to visit an attorney. The cost of creating these documents usually ranges between $1,500 and $3,000. In order to accomplish this, we have set aside $2,000 from cashing out the whole life insurance policies.

1. Create New Wills

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Although you already have wills in place, we recommend creating new ones with the assistance of an attorney to ensure that all your estate planning needs are met. In drafting these new wills, we suggest that you list guardians and alternate guardians for Ben and Becky so that you can rest assured knowing they will be in the care of those you love and trust if anything should happen to the two of you. You will also need to list an executor and successor executor to carry out the final wishes outlined in your will.

2. Draft a Living Will and Designate a Power of Attorney

As mentioned previously, a living will outlines any care, treatment, services, and procedures to which you wish to consent should you become incapacitated, including your preference for life-sustaining treatment. Additionally, the Power of Attorney designation gives permission to whomever you choose to make decisions for you during incapacitation – either financial or health care related. You may choose the same or different individuals for each power of attorney, but it is important to make sure that those chosen are willing to act as your agent in this situation. These documents can save your survivors the pain of making difficult decisions on your behalf, as well as ensure that your doctor understands your end-of-life wishes and treats you accordingly.

3. Create a Joint Living Trust

We recommend creating a joint living trust for the benefit of Becky and Ben and naming it as the contingent beneficiary of your 401(k) accounts, Tyler’s Traditional IRA, Mia’s Rollover IRA, and your individual life insurance policies by updating your beneficiary designation forms for these accounts. Additionally, we propose placing your savings, checking, and investment accounts within the trust as well. This way, in the event of an untimely passing, these assets can be distributed to Ben and Becky as you have outlined in the trust document. Any personal property items you wish to avoid probate, such as your boat, jewelry, paintings, and collectibles, should also be included in your trust. For items without a title, your attorney will most likely need to prepare an Assignment of Tangible Personal Property document to confirm ownership by the trust. Allow us to reiterate that the creation of a living trust will protect assets held by it from being subject to probate upon your passing, and is therefore an extremely effective way to maintain your family’s privacy.

4. Write a Letter of Instruction

The letter of instruction can be written at home and is not a legally binding document. However, its importance cannot be overstated. A letter is not a will or a substitute for one. It provides your family with the necessary information to locate your personal papers and belongings, as well as your personal desires on how your affairs should be settled upon your passing or incapacitation. Creating a letter of last instruction can save a grieving family a great deal of emotional distress. We have included a document in Appendix E that will be helpful in drafting your letters.

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5. Update Beneficiary Designations

In addition to the aforementioned documents, we recommend taking a look at and updating your current primary and contingent beneficiary designations as needed. If you have not named beneficiaries for your retirement accounts, we recommend naming one another as the primary beneficiary on these accounts with your trust as the contingent beneficiary. In doing so, these assets will pass to the surviving spouse upon the first spouse’s death, or to your trust to be designated as per the terms of the prior established trust document if the second spouse is no longer living. Due to the confusion and limitations often involved with placing vehicles in a living trust, we suggest naming your trust as the transfer on death (TOD) beneficiary for your vehicles, which can be done simply by filing a form at the Department of Motor Vehicles. Additionally, it is important to know and understand the form of ownership of your jointly held assets.

We recommend reviewing the deed to your home with an attorney to ensure ownership as tenancy by the entirety (TE) with a TOD designation to your trust. As described earlier, TE automatically implies a right of survivorship for the living spouse so that the property is left to them upon the first spouse’s passing, and protects the property from your individual creditors. This will protect your home from individual creditors as well as probate. These recommendations are ones we believe best accomplish your goals of providing for Ben and Becky and maintaining the privacy of your family’s financial affairs in the case of your passing. The decision to forgo these documents can significantly increase the time, costs, and, and frustration of survivors, who then may have to handle the estate in accordance with state or federal mandates. Please confirm these suggestions with an attorney prior to implementation. Although we cannot legally draft these documents ourselves, we are willing to work collaboratively with the attorney of your choosing to accomplish your estate planning goals. Estate tax costs are not a concern at this point in time, but we will continue to monitor your estate and take further action as needed.

AlternativesIf you do not wish to establish a trust at this time, we still recommend drafting new wills, living wills, power of attorney documents, and letters of instruction. Probate can still be avoided by creating TOD and POD designations for your savings, checking, and investment accounts, as well as your home and vehicles. In naming TOD and POD beneficiaries, you should consider close family and friends whom you trust would use these assets as you see fit, such as providing for Ben and Becky. Additionally, you should still name contingent beneficiaries for your retirement accounts and life insurance policies. Items with beneficiary designations will avoid probate, but may not be distributed the way you would prefer.

An alternative to creating a living trust would be to set up a custodial account for Ben and Becky. If this is the route you decide to take, we recommend a Uniform Transfer to Minors Account (UTMA) that can be established at your bank. UTMAs can own many types of assets, including real estate and personal property, but all assets transferred to

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these counts are irrevocable and are taxed to the child at their individual tax rate. In addition to this, the accounts are managed by a custodian, who may manage to assets as they see fit until the child reaches the age of majority, at which time they are given full access to use the assets as they please.

Who What When Where Why How How Much

Tyler and Mia

Create new wills, living wills, POAs, and a Joint

Living Trust

Within the next 60 days

At an attorney’s

office (we are happy to

recommend one)

To provide for Becky and Ben should anything

happen to the two of you and ensure

your family’s privacy by

avoiding probate

Speak with your

attorney

$2,000 from

cashing in whole life

policy

Tyler and Mia

Write a letter of instruction

As soon as

possible

This can be done at home

To aid your family in dealing with

your affairs in the event of death of

incapacitation

We have provided

some useful material, and we would be glad to guide you through the writing

process

$0

Tyler and Mia

Update beneficiary

designations on your 401(k) accounts,

naming one another as primary

beneficiary and your trust as contingent

As soon as

possible

Through your respective employers

So your spouse receives the

proceeds in the case of your

passing, or the assets pass to your living trust and can be used to provide

for Ben and Becky, avoiding

probate

Speak with HR

Department$0

Tyler and Mia

Update beneficiary

designations onTyler’s

Traditional IRA, Mia’s

Rollover IRA, naming one another as primary

beneficiary and your trust as

As soon as

possible

Summit Financial Advisors

So your spouse receives the

proceeds in the event of your passing, or the

assets pass to your living trust and can be used to provide

for Ben and Becky, avoiding

probate

We will provide

necessary forms

$0

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contingent

Tyler and Mia

Fund your trust with savings, checking, and

investment accounts, as well as any

personal property items

you wish to avoid probate, such as your boat, jewelry, paintings, and

collectibles

When you meet

with an attorney

to create your trust

At an attorney’s

office

To provide for Becky and Ben should anything

happen to the two of you and ensure

your family’s privacy by

avoiding probate

Speak with an attorney

$0 (included in the cost of drafting previously mentioned documents)

Tyler and Mia

Name your trust the TOD

beneficiary of your vehicles

As soon as

possible

Any DMV location

To protect your family’s privacy by ensuring that your vehicles are

not subject to probate in the case

of your passing

Visit the DMV and ask for a

Beneficiary Transaction

Request Form

$0

Tyler and Mia

Review the deed to your house; make

sure ownership is TE with trust

as TOD beneficiary

As soon as

possible

At an attorney’s

office

To protect your home from

individual creditor claims and

protecting your family’s privacy by ensuring it is

not subject to probate in the case off your passing

Speak with an attorney

$300 from cashing in whole life

policy

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Part I: Client PacketPart II: Financial Analysis

Part III: Tax AnalysisPart IV: Insurance AnalysisPart V: Education Analysis

Part VI: Investment AnalysisPart VII: Retirement Analysis

Part VIII: Estate AnalysisPart IX: Special Needs Analyses

Part X: Implementation & Monitoring

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Section A: Family Vacations

OverviewTime spent together with family is something that should never be taken for granted. With Becky and Ben growing closer to adulthood every day, we understand the importance of spending as much quality time with them as possible and providing them with a strong foundation of moral and ethical principles that they can carry forward throughout the rest of their lives.

Current SituationFrom our meeting with you, we have learned that you are currently spending $3,500 a year on family vacations and wish to increase this amount, as you feel the children are growing up so fast and want to have more quality time to spend with them. Additionally, your current spending on dining out is $375 per month, or $4,500 annually.

RecommendationsIn order to increase funds available to put towards family vacations, we recommend

decreasing the amount spent on dining out by $100 per month ($1,200 annually), and putting it towards this goal instead. This can be utilized in a number of ways, including monthly day trips to local parks and other areas, or savings towards an annual vacation.

AlternativesThere are many other ways to increase the amount of quality family time spent with Becky and Ben without incurring any extra costs for annual family vacations. For example, you could designate one night a week to family game nights at home, which can be an equally enjoyable and fulfilling experience.

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Decrease dining out expenses by $100/month

Reallocate $100 monthly savings

$1,200 in annual vacation funds

Section B: After-School and Summer Child Care

Current SituationYou are facing additional costs for after-school and summer care for Becky and Ben, as Tyler’s parents would like some more flexibility. While their grandparents are more than happy to provide care, it is clear that this expense must be accounted for going forward. The question becomes how will your budget cover these additional expenses, while still allowing for college and retirement funding?

Recommendation

1. Discretionary Cash Flow

Taking into account your goals and savings needs, we were able to free up approximately $2,500 annually in discretionary cash flows to be spent on part-time after-school and summer care. This balance is a low-end projection for the annual estimated cost of childcare.

Numerous clubs and extracurricular activities provide a less expensive alternative for the supervision of your children. For example, depending on Becky’s interest in playing the piano, she could join an after-school music club. Though Ben is slightly too young to be engaging in advanced extracurricular activities, this $2,500 annual amount employs the same strategy for Ben of joining a baseball and/or soccer team that holds regular practices if/when ready.

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Section C: Art Gallery

OverviewWhile it is great to consider saving enough to be protected in retirement, it is also nice to plan for additional goals that you would like to accomplish in retirement. In order to accomplish these special goals, it is important to begin planning for them early.

Assumptions The universal inflation rate is 3%. Art gallery costs $100,000 today. Current savings of $5,000 earmarked for art gallery. Will fund art gallery with non-qualified investment. Will fund home additions with non-qualified investment. Using a lump sum distribution from non-qualified investment for education

savings. Will be using moderately aggressive investment strategy. Goals will be funded at retirement age of 65.

Current Situation Mia, you would like to open up an art gallery in downtown Radford after completing an addition to your house in which to place your art. If you opened up the gallery today it would cost you $100,000. Assuming a 3% inflation rate, the cost of that gallery will be $186,029. In order to prepare for this goal you have $5,000 in Checking Account II, earning a 0% return.

RecommendationsIn order to best meet this goal, as stated in the investment section of this plan, we recommend setting aside a lump sum of your non-qualified assets today for this goal. This lump sum will then grow at 6.17% return for the next 21 years. In addition to a lump sum being set aside at 6.17%, we also suggest that you place the $5,000 balance from your second checking account into a money market that receives a return of 1%. Therefore, in order to achieve a future value of $186,029, we suggest that you save a lump sum of $51,158 today.

Who What When Where Why How How Much

Tyler and Mia

Save for art gallery

Now In non-qualified

investments

Earn a higher return

Set aside a certain

amount in non-

qualified assets

$51,158

Tyler and Mia

Place checking account into

money market

Now Money Market Account

Earn a higher return

Transfer funds

$5,000

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Section D: Home Addition

OverviewWhile it is great to consider saving enough to be protected in retirement, it is also nice to plan for additional goals that you would like to accomplish in retirement. In order to accomplish these special goals, it is important to begin planning for them as early as possible.

Assumptions The universal inflation rate is 3%. Home addition costs $40,000 today. Will fund home addition with non-qualified investment. Will be using moderately aggressive investment strategy. Goals will be funded at retirement age of 65.

Current Situation Mia, you would like to build a small addition to your house to place your art, and if you completed this addition today it would cost you $40,000. Assuming a 3% inflation rate, the cost of the home addition will be $74,412 at retirement.

RecommendationsIn order to best meet this goal, as stated in the investment section of this plan, we recommend setting aside a lump sum of your non-qualified assets today for this goal. This lump sum will then grow at 6.17% return for the next 21 years. Therefore, in order to achieve a future value of $74,412, we suggest that you save a lump sum of $21,164 today.

Who What When Where Why How How Much

Tyler and Mia

Save for home addition

Now In non-qualified

investments

To earn a higher return

Set aside a certain

amount in non-

qualified assets

$21,164

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Part I: Client PacketPart II: Financial Analysis

Part III: Tax AnalysisPart IV: Insurance AnalysisPart V: Education Analysis

Part VI: Investment AnalysisPart VII: Retirement Analysis

Part VIII: Estate AnalysisPart IX: Special Needs Analyses

Part X: Implementation & Monitoring

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Implementation

Changing financial paths is never an easy thing to do. However, here at Summit Financial Advisors, you do not have to take this journey alone. Upon further discussion, we will mutually agree on the responsibilities consistent with the scope of our engagement given your decision to accept or reject the recommendations we have provided. According to the CFP® Board’s Practice Standards Series 500: Implementing the Financial Planning Recommendation(s), given that you decide to move forward with us in this relationship, our responsibilities to you may include, but are not limited to, the following:

Identifying activities necessary for implementation; Referring to other professionals; Coordinating with other professionals; Sharing information as authorized; and Selecting and securing products and/or services.

It is our duty to you to report any conflicts of interest that may avert us from providing you with sound financial advice, and to use professional judgment in recommending products and services that are suitable for your personal financial situation. Our fiduciary responsibility to clients is what makes our firm, and the financial planning industry as a whole, so unique.

Monitoring

As we previously alluded, financial planning is not a single step. Rather, it is a process by which one (or many) are able to achieve financial freedom and accomplish their most important life goals. Throughout the length of our relationship, we will continue to monitor your financial situation by terms on which we mutually agree. Our firm typically meets with clients on an annual basis, but we will continue to update you on changes and occurrences as needed. If ever there is a time you wish to speak with use, we would be glad to speak over the phone or schedule a meeting in person.

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