FIN – George (Aged 43) and Grace Tham (Aged 40)

| July 29, 2018

George (Aged 43) and Grace Tham (Aged 40)INTRODUCTIONGeorge and Grace have been married for the last 16 years. They have 3 children: Peter (16), Jean (12) and Simon (9, special needs)George’s parents are in their late 60s. George is the oldest child in his family, and has two other sisters after him.Grace is the second child. She is preceded by an older sister, and two younger brothers. Her mother is aged 75.EMPLOYMENTIn the late 60s, George’s father started an import/export business dealing in mushrooms. Since a very young age, George has been helping his father out in the business, and is expected to take over the business in 2016.Grace works as a graphic artist with a local production house.INCOME AND EXPENSESThe following represents the inflow and outflow figures for George and Grace family the period 1.1.2013 to 31.12.2013 :Summary of Annual InflowsAnnual Salary (including Bonus and Employee’s CPF)Employer’s CPF contributionInterest from SavingsInterest from Fixed DepositTotalGeorge$120,000$13,600$245$2,360The total family expenses incurred is shown below:SavingsFixed OutflowsCPF for house mortgage*Cash for house mortgage*Car loan repaymentInsurance premiumVariable OutflowsGeorge6,000Grace$6,000.00$??,???.??$??,???.??$0$6,265.00$0$7,305Grace55,0008,800TaxFoodTransportationGroomingEntertainment/VacationMedical/DentalUtilities/HouseholdGiftsParental SupportMiscellaneous$0$15,200.00$9,400.00$5,600.00$18,000.00$4,500.00$8,500.00$6,000.00$22,000.00$12,500.00$0(*Amounts used from CPF and Cash to pay for the house mortgages are not given.)ASSETS AND LIABILITIESThe following information pertains to assets and liabilities for the family as at 31.12.2013 :1.George’s and Grace’s CPF balances are as follows:OrdinarySpecialMedisaveGeorge40,00026,00038,000Grace25,00020,00030,0002. George is relatively risk averse due to investment losses suffered during the Global Financial Crisis, having been advised to invest in structured deposits. As a result of this, George’s excess funds are stashed in the following instruments: $70,000 in a savings account, and $200,000 in a one-year fixed deposit. Current interest rates applicable to both accounts are 0.35% and 1.18% respectively.3. Grace, on the other hand, has made relative good returns from her unit trust investments, and holds about $67,000 in global equity funds. About 30% of these funds are in dividend paying unit trust that re-invests her dividends. Average dividend rate is 4% per annum.She also holds 2 lots of land with a Land Banking outfit, where each lot costs USD10,000 (exchange rate at 31 December 2013 being USD/SGD 1.25). At the time of writing, there are no offers for the land that she holds.4. The house that the Thams now live in was purchased 5 years ago, and is held in George’s sole name. The purchase price was $1,200,000, and the couple paid  $400,000 in cash and CPF, and took up a loan for the balance. As at 31 December 2013, the house was valued at $1,500,000 outstanding balance on the loan was $640,868 The interest rate on the 22 year loan has remained unchanged at 1.5% per annum, monthly rest, resulting in a monthly instalment of $3,560. The Thams use all their monthly CPF Ordinary Account contribution to pay for the instalment, and tops up the balance with cash.5. During a family holiday in December, $8,500 was charged to George’s credit card. He has yet to repay the credit card company.6. The family car, a Mitsubishi Grandis bought in Grace’s name, was purchased 6 years ago and is fully paid for. The car has a street value of $56,000.OTHER INFORMATION1. Peter has been giving tuition to group of 6 Primary School students at a rate of $15 per student per hour. His classes are 2 hours per session, and he conducts sessions separately for English, Maths and Science (a total of three sessions per week). He teaches from January to mid-November (excluding June), giving a grand total of 42 weeks of classes.2. Grace recently detected lumps on her breast. She has made an appointment with an Oncologist.3. Every month, George gives a monthly allowance of $1,000 to his parents for their expenses.4. Family Survival NeedsGeorge feels that he is responsible for financially providing for his family until their youngest child is 26 years old.? When the house was first purchased, George bought a mortgage reducing term insurance on a joint-life basis to cover for the initial loan value of $800,000 at a discount rate of 1.5% p.a. (A feature of the policy is that it pays the outstanding balance of the loan at the death of the insured). Premium for the mortgage protection plan is $3,515p.a.? Having discovered that his wife has breast lumps, George decides to quickly buy a $600,000 Term plan with $500,000 Critical Illness benefit to cover Grace in the event she contracts and/or dies from cancer. Her term plan that covers her until age 99 costs her $7,305 each year. For fear of being uninsurable, she does not reveal in the medical questionnaire in the insurance application forms that she discoveredbreast lumps and is awaiting a medical examination. Her policy was approved by the insurer.? About 8 years ago, Grace bought a $70,000 5-year limited-pay whole life plan. The plan covers her for accelerated Critical Illness benefit of $50,000. The annual premium for her plan was $7,500p.a. .The Cash Value of her plan is $42,979.? George bought a $100,000 whole-life plan with $50,000 accelerated Critical illness benefits when he was 30 years of age. His premium per annum is $2,750 payable for the duration of his policy, whichexpire at age 99, Cash value was estimated at 15,337.5.6.Education NeedsGeorge would like to provide for Peter and Jean to complete a basic 3-year degree at a local university at ages 21 and 19 respectively. He expects that a year’s tuition would cost about S$9,000 today, and that this amount would inflate by 6% per annum. George has also been reflecting on probate and final expenses. Having done some research, George would like to provide for the following final expenses :Funeral Expenses $20,000Probate Costs$32,198Due to the lifestyle enjoyed by the family, George has also been advised to keep aside for Emergency expenses an amount equal to 6 times his current monthly gross income. This will allow his family to have some immediate money to live on in the event of his demise and until such a time his estate is disposed.George would also like to provide an additional $400,000 for Simon’s care.___________________________________________________________________________Question 1 (20 marks)Prepare for George and Grace (combined) the following:(a) Cash Flow Statement for the period 1 Jan 2013 to 31 December 2013. (10 marks)(b) Net Worth Statement as at 31 December 2013. (10 marks)

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