DATA – Introduction
Update Two
1-28-2002
Clients are the Jones’ (married for 5 years). Emily Jones is 26; Talon Jones is 25. The Jones’ have two children: Alice (4 years) and Susie (3 months). Talon attended high school, but quit before graduation to be a professional motocross rider. Presently, he rides for the Mitsui Company Racing Team in Europe at a contracted pay rate of $100,000 year. In addition, he can earn additional money (about $125,000) in the off-season by racing in non-team events in both Europe and the United States. He is serving as the model for a remote-controlled toy and should earn a royalty for each one sold. Release was delayed, but royalty agreement calls for about $1.50 each unit (early projections range from 100,000 units to 500,000 if he places well in the standings).
Talon and his brother, Fallon, also own and operate a racing school for aspiring motocross riders. They hope to grow this business into a major income source when Talon retires from pro-racing. Currently, Emily does not work due to “burn out” but may later work again as an emergency room nurse (she’s fully licensed).
The Jones’ live in Rocklin, California, at 213 Mimi Lane ($200,000/ about 20% paid off the rest on a 20/yr mortgage). Talon’s parents, Clem (67) and Sandra (59), are both healthy, and well-off ($1.2M - $2M gross estate). Emily’s parents are both deceased, but she has a sister, Emma (28), and a brother, Al (26). Al has no formal legal or business training but Talon has entrusted him with all of his contract negotiations and business strategy. Talon does not trust “outsiders” as a general rule. He does, however, have an accountant who handles his books and tax issues.
Talon has a desire to help the families of motocross riders who have been seriously disabled or killed while riding. Before Susie was born, Emily was a volunteer for the “Wish Upon a Star Foundation”, a charity that granted wishes to terminally ill children.
Additional Facts:
Emily has recently received 5 acres and an income-producing motel on the South Shore of Lake Tahoe, California, as a residual from a Charitable Lead Trust her grandfather set up. She was completely unaware of this before the deed was delivered last Monday. The motel and property are worth about $2.25M and nets an income of about $270,000 a year. Her grandfather’s basis in the property was $325,000 and on his death in 1978 the property had a FMV of $750,000. Emily deposited the first check ($22,500) from the Meyer Professional Management Company into the checking account at California Mutual Bank. Emily isn’t sure if MPMC should continue as property managers. MPMC charges 16.5% of the income collected.
Due to previous racing accidents, Fallon has been diagnosed with a degenerative neurological condition that will leave him wheel chair-bound within 10 years. Talon informs you that because of his shortened career, Fallon turned to alcohol and has completed rehab twice (1995 and 1999). However, since 1999, Fallon has been clean and sober. Emily and Fallon have a tense relationship stemming from the bachelor party that Fallon organized for his brother. Apparently, this bachelor party led to Talon sporting a black eye and swollen lip on his wedding day.
Emma is an attentive aunt to Alice and Susie, but is always asking Emily for money to pay the rent or some other bill “until payday”. However, Emma always repays her sister with her next paycheck.
Talon Jones Racing, including his professional racing with the Mitsui Corporation and the school with Fallon, is now a California Corporation incorporated under Subchapter C of the Internal Revenue Code. For now, only Talon, Fallon, and a part-time secretary are the only employees. Specialty instructors will be brought in as independent contractors. Of the 100,000 shares outstanding: Talon owns 80,000; Fallon owns 10,000; Emily owns 5,000; and Alice and Susie each own 2,500. In 2001, the net income (except payroll) for the C Corp was $54,000. Talon paid the secretary $12,000, Fallon received $24,000, but Talon took nothing in salary. Instead, he distributed the remaining income as dividends according to percentage of ownership. Growth is projected at 6-8% each year for about 10 years, then will level off.
Shares were obtained under IRC 351 at $.50 a share, as follows:
Talon: Van + $18,000 cash
Fallon: $5,000 cash
Emily: $2,500 computer system and printer
Alice: $1,250 cash
Susie: $1,250 cash
Al and Fallon want to buy a bar in Tahoe for about $1.5M. They want Talon and Emily to loan them $200,000 for the down payment.
Other Assets:
Investment Account – Smith/Blarney: $25,000 (lost 65% of value in March, 2001)
Checking Account – California Mutual Bank (Joint): $16,000 + $22,500 (Hotel income for January)
Savings Account – California Mutual Bank (Talon): $11,000
Savings Account – California Mutual Bank (Emily): $2,500
CD Account – Hirihito International Bank (Joint): $8,000
Checking Account – Bank of Venice, Italy (Talon): $92,000
401k (Emily) - $7,600
1966 Chevrolet Corvette Coupe (Talon): $25,000 (?)
2001 Ford Expedition: $46,000
1998 Utility Van (Racing): $22,000
Personal Issues:
After you gain his trust, Talon informs you that he believes he is the father of a 7-year-old boy, Luca, who lives with his mother, Constanza, a model in Milan, Italy. Constanza has one other child from another motocross rider. Emily knows about Luca and, while she doesn’t like the situation, knows that Talon and Connie broke up 2 years before she even met Talon. She also knows and accepts that Talon wants to pay for Luca’s university level education in either Italy or the United States when he turns 18. Emily is adamant, and Talon reluctantly agrees with her, that financial support for Alice and Susie will always come before Luca.
Emily, ecstatic, calls you and tells you that she is about five weeks pregnant. Upon hearing the news, Talon passed out and needed to be revived.
More Facts:
Talon tells you that doctors were concerned enough about his collapse (that he had another child on the way) to schedule him for a CAT scan within the week.
Also, Talon and Emily have listed other people that might fit into their estate plan: