CFA三級(jí)知識(shí)點(diǎn)必備：Private wealth management 打印版

PrivateWealth

Management

CFAп???亯?

??φJ(rèn)CY

1-49

1.PrivateWealth

Management?1?

2-49

1.PrivateClientsversusInstitutionalClients

Summary

Privateclients

Institutionalclients

diverseinvestmentobjectivesspecific,clearlydefined

(maynotbeclearlydefinedorinvestmentobjectives

quantified)

Investment

objectives

Timehorizon

Scale

ashortertimehorizon

theoreticallyinfinite

larger

smaller(morelimitations)

Constraints

taxableincomemaybemore

favoredbyatax-exempt

institution

Taxes

significantandcomplex

Investment

Governance

lessformalgovernance

structure

formalgovernancestructure

Investment

Sophistication

ahigherdegree(more

investmentresources)

Other

Distinctions

emotional

Regulation

separateregulatorsorsharedregulatorystructure

Uniquenessand

Complexity

Similarfinancialandobjective,Similarobjective,similar

differentinvestmentstrategiesstrategies

3-49

2.UnderstandingPrivateClients

?InformationNeededinAdvisingPrivateClients

zPersonalInformation

zFinancialInformation

zPrivateClientTaxConsiderations

?ClientGoals

?PrivateClientRiskTolerance

?TechnicalandSoftSkillsforWealthManagers

4-49

2.1InformationNeededinAdvisingPrivateClients

?

PrivateClientTaxConsiderations--BasicTaxStrategies

zTaxavoidance.

9Somecountriesallowinvestorstocontributelimitedamountstocertain

accountsthatpermittax-freeearningsandfuturewithdrawals.Another

exampleoftaxavoidanceinvolvesvariouswealthtransfertechniques.

zTaxreduction.

9tax-exemptbonds;tax-efficientassetclasses

zTaxdeferral.

9Bydeferringtherecognitionofcertaintaxesuntilalaterdate,clientscan

benefitfromcompoundingportfolioreturnsthatarenotdiminishedby

periodictaxpayments.

9Someinvestorsinaprogressivetaxsystemmayalsoseektodefertaxes

becausetheyanticipatelowerfuturetaxrates.

9limitportfolioturnover.

5-49

2.2ClientGoals

?

Financialgoalsarenotalwaysapparent,defined,ormeasurable:theymaybeexpressedby

clientsaswishes,desires,oraspirations.

z

PlannedGoals:Plannedgoalsarethosethatcanbereasonablyestimatedorquantified

withinanexpectedtimehorizon.

9Retirement.Maintainingacomfortablelifestylebeyondtheirworkingyearsisa

goalformostclients.

9Specificpurchases.Clientgoalsmayfocusonspecificpurchases,whichtendtobe

afunctionofthelevelofwealthand/orstageoflife.

9Education.Clientsoftenwishtofundtheirchildren’seducation.

9Familyevents.(e.g.weddings)

9Wealthtransfer.Whenclientshaveadefiniteamountofinheritancethattheywish

totransfer,thisgoalmayneedtobeprioritizedoverothergoals.

9Philanthropy.Clientsoftenwishtomakecharitabledonationsduringoraftertheir

lifetime.

6-49

2.2ClientGoals

zUnplannedGoals:Unplannedgoalsarethoserelatedtounforeseenfinancial

needs.(difficulttoestimatethetimingandtheamountoffundingneeded)

9Propertyrepairs.Althoughhouseholdsmaybeinsuredagainstlossesor

catastrophes,clientsmayfaceadditionalspendingneedsifinsurance

doesnotfullycoversuchevents.

9Medicalexpenses.Privateclienthouseholdsnormallyhavemedical

insuranceforillnessorhospitalization,buthealthinsurancemaynot

coverallmedicalexpenses.Arelatedissueinsomelocationsisthe

potentialcostofeldercareforoneselforone’sfamilymembers.

9Otherunforeseenspending.

?Whenestablishingclientgoals,privatewealthmanagersconsidergoal

quantification,goalprioritization,andgoalchanges.

7-49

2.3PrivateClientRiskTolerance

?Keytermsforasetofrisk-relatedconcepts:

zRisktolerancereferstothelevelofriskanindividualiswillingandableto

bear.Risktoleranceistheinverseofriskaversion.

zRiskcapacityistheabilitytoacceptfinancialrisk.Thekeydifferencebetween

riskcapacityandrisktoleranceisthatriskcapacityismoreobjectivein

nature,whilerisktolerancerelatestoanattitude.

zRiskperceptionisanindividual’ssubjectiveassessmentoftheriskinvolvedin

aninvestmentdecision’soutcome.

9Howaclientperceivestheriskinessofaninvestmentdecisionorthe

investmentclimate—dependsonthecircumstancesinvolved.

8-49

2.4TechnicalandSoftSkillsforWealthManagers

TechnicalSkills

?

Technicalskillsrepresentthespecializedknowledgeandexpertisenecessarytoprovideinvestment

advicetoprivateclients.

z

z

z

z

z

z

Capitalmarketsproficiency.

Portfolioconstructionability.

Financialplanningknowledge.

Quantitativeskills.

Technologyskills.

Languagefluency.

SoftSkills(non-technical)

?

Softskillstypicallyinvolveinterpersonalrelationships—thatis,theabilitytoeffectivelyinteractwith

others.

z

z

z

z

Communicationskills.

Socialskills.

Educationandcoachingskills.

Businessdevelopmentandsalesskills.

9-49

2.PrivateWealth

Management?2?

10-49

3.Investmentplanning

?Afterdevelopinganunderstandingoftheirclients,wealthmanagersbeginthe

processofhelpingclientsmeettheirobjectives.

zCapitalSufficiencyAnalysis

zRetirementPlanning

zInvestmentpolicystatement

11-49

3.1CapitalSufficiencyAnalysis

?MethodsforEvaluatingCapitalSufficiency

zDeterministicForecastingMethod

9Portfoliogrowthinadeterministicmodeloccursina“straight-line”

manner.

9Inputs:aportfolioreturnassumption,thecurrentvalueoftheportfolio,

anticipatedfuturecontributionstotheportfolio,andcashflowsfromthe

portfoliothatrepresentclientneeds(accordingtotheclient’sgoals).

9Whilesimpletounderstand,thedeterministicmethodistypically

unrealisticwithrespecttothevariabilityinpotentialfutureoutcomes.

12-49

3.1CapitalSufficiencyAnalysis

?MethodsforEvaluatingCapitalSufficiency

zMonteCarlosimulation

9MonteCarlosimulationallowsawealthmanagertomodelthe

uncertaintyofseveralkeyvariablesand,therefore,theuncertaintyor

variabilityinthefutureoutcome.MonteCarlosimulationgenerates

randomoutcomesaccordingtoassumedprobabilitydistributionsfor

thesekeyvariables.

9Inputs:SomeMonteCarlosimulationsoftwarerequiresseparateasset

classassumptions—suchassimpleaveragereturn,standarddeviation,

andcorrelationwithotherportfolioassetclasses—ratherthan

assumptionsattheoverallportfoliolevel.

13-49

3.1CapitalSufficiencyAnalysis

?InterpretingMonteCarloSimulationResults

MonteCarloSimulationResults

Year10

PortfolioValue

$3,519,828

$1,981,861

$1,239,837

$765,821

Year15

PortfolioValue

$3,651,264

$1,698,449

$843,820

Year20

PortfolioValue

$3,647,328

$1,530,372

$569,974

Percentile

5th

25th

50th

75th

95th

SuccessfulTrials

$305,126

($264,048)

88%

($249,205)

($1,402,608)

69%

$197,179

98%

?Thetablealsoshowsthepercentageoftrialsatagivenhorizoninwhichtheclient

successfullyachievedherobjective.

?Wealthmanagerstendtoguideclientstowarda75%–90%probabilityofsuccess,

althoughnoindustrystandardrangeexists.

14-49

3.2RetirementPlanning:MortalityTables

?Amortalitytableindicatesindividuallifeexpectanciesatspecifiedages.

zInpractice,awealthmanagercanuseamortalitytabletoestimatethe

presentvalueofaclient’sretirementspendingneedsbyassigningassociated

probabilitiesbasedonlifeexpectancytoannualexpectedcashoutflows.

zOnepotentialdrawbacktousingmortalitytablesisthatanindividualclient’s

probabilityoflivingtoacertainagemayexceedthatofthegeneral

population.

PlanYear

ClientAge

LifeExpectancy

SurvivalProbability

0

1

2

3

4

5

72

73

74

75

76

77

12.0

11.4

10.8

10.2

9.7

100%

97%

93%

90%

86%

82%

9.1

15-49

3.2RetirementPlanning:Annuities

?Annuitiesprovideaseriesoffixedpayments,eitherforlifeorforaspecified

period,inexchangeforalumpsumpayment.Arelativelysimplewayof

calculatingthepresentvalueofaclient’sdesiredretirementspendingisbypricing

anannuity.

?Twobasicformsaretheimmediateannuityandthedeferredannuity.

zWithanimmediateannuity,anindividual(calledthe“annuitant”)paysan

initiallumpsum,typicallytoaninsurancecompany,inreturnforaguarantee

ofspecifiedfuturemonthlypayments—beginningimmediately—overa

specifiedperiodoftime.

zWithadeferredannuity,thespecifiedfuturemonthlypaymentsbeginata

laterdate.

9Lifeannuitiesarethoseinwhichtheincomestreamcontinuesaslongas

theannuitantlives.Lifeannuitieshelptomitigatelongevityrisk.

16-49

3.2BehavioralConsiderationsinRetirementPlanning

?Heightenedlossaversion.Somestudiessuggestthatretireesaremuchmoreloss-

aversethanyoungerinvestors.

?Consumptiongaps.Duetolossaversionanduncertaintyaboutfuturefinancial

needs,manyretireesspendlessthaneconomistswouldpredict,resultinginagap

betweenactualandpotentialconsumption.

?The“annuitypuzzle.”Whileannuitiescanhelptomitigatelongevityriskand,in

somecases,mayimprovetheprobabilityofretireesmeetingtheirspending

objectives,individualstendnottoprefertoinvestinannuities.

zExplanationsforthepuzzleincludeinvestors’reluctancetogiveuphopeof

substantiallifestyleimprovement,theirdislikeoflosingcontroloverthe

assets,and,inmanycases,thehighcostofannuities.

17-49

4Investmentpolicystatement

?Theinvestmentpolicystatement(IPS)isawrittenplanningdocumentthat

describesaclient’sinvestmentobjectivesandrisktoleranceoverarelevanttime

horizon,alongwiththeconstraintsthatapplytotheclient’sportfolio.

?TheIPSisalsoanoperatingmanual,listingkeyongoingmanagement

responsibilities.

?Advantages

zOneadvantageisthattheIPSencouragesinvestmentdisciplineand

reinforcestheclient’scommitmenttofollowthestrategy.

zAsecondadvantageisthattheIPSfocusesonlong-termgoalsratherthan

short-termperformance.

18-49

4Investmentpolicystatement

19-49

5.2PortfolioReportingandReview

PortfolioReporting

PortfolioReporting

Portfolioreportinginvolvesperiodicallyproviding

clientswithinformationabouttheirinvestment

portfolioandperformance.

Portfolioreviewsprovideanopportunityforthe

wealthmanagertorevisittheclient’sinvestment

planandreinforcetheappropriatenessofthe

strategy.

?

?

?

?

?

?

?

Reflectstrategicassetallocationtargets;

Detailedperformancereport;

Historicalperformancereport;

Contributionandwithdrawalreport;

Purchaseandsalereport;

?

?

?

Revisittheclient’sinvestmentplanand

reinforcetheappropriatenessofthestrategy;

Inquiresaboutanychangesintheclient’s

objectives,risktolerance,ortimehorizon;

Comparisonoftheclient’sassetallocationto

thetargetallocation.

Currencyexposurereport;

Inherentconflictbetweentheclient’s

investmenthorizonandperformanceevaluation

horizon;

?

?

Goals-basedinvesting→focusontheclient’s

progresstowardagoal;

Benchmarkreports.

Thekeydifferencebetweenportfolioreporting

andportfolioreviewisthatthewealthmanager

ismoreactivelyengagedinareview.

20-49

5.3EvaluatingtheSuccessofanInvestmentProgram

?GoalAchievement.

zAsuccessfulinvestmentprogramforaprivateclientisonethatachievesthe

client’sgoals/objectiveswithanacceptableamountofrisk.

zTheclientshouldremainlikelytomeethisorherlong-termobjectives

withoutmeaningfuladjustmentstotheplan.

?ProcessConsistency.

?PortfolioPerformance.

zabsoluteorrelative

zbenchmark

zactualdownsiderisk

?DefinitionsofSuccess.

21-49

7.PrivateClientSegments

?Summary

Asset

Level

service

personnel

Segments

Characteristics

Robo-

less$250,000Robo-advisors

low-cost;smallportfolio;MVO;ETF;mutualfund;

advisors

Mass

Affluent

$250,000to

$1million

professional

wealthmanagercustomized;

buildtheirportfolio;financialplanningneeds;non-

High-Net-

Worth

$1millionto

$50million

specialized

advisers

morecustomizedstrategies;taxplanning;wealth

transferissues;

Ultra-High-over$50

Net-Worthmillion

awiderrange

complextaxsituations,estateplanning,bill

ofserviceneedspayment,conciergeservices,travelplanning,and

adviceonacquiringhigh-endassets;familyoffice.

22-49

3.SimpleTax

Environment

23-49

TaxesandPrivateWealthManagement

Investmentincometax(accrualtaxes):

Taxdrag

Investmentincometax(accrualtaxes):

taxdrag>taxrate

FVIFIT=[1+R(1-T)]N

1

Deferredcapitalgainstax(MV=costbasis):

FVIFCGF=[(1+R)N(1-TCG)]+TCG

Deferredcapitalgainstax(MV≠costbasis)φ

longerinvestmenthorizon

higherinvestmentreturn

Deferredcapitalgainstax:

Taxdrag=Taxrate

greatertaxdrag

greatertaxdrag

FVIFCGF=[(1+R)N(1-TCG)]+TCG

B

Wealth-basedtax:

FVIFWT=[(1+R)(1-T)]N

W

longerinvestmenthorizon

unchangedtax

Returnafterrealizedtaxes:

drag,butlargervalueoftaxdeferred

RART=R(1–PT–PT–PCGTCG

)

I

I

DD

higherinvestmentreturn

drag,butlargervalueoftaxdeferred

Wealth-basedtax:

unchangedtax

Accrualequivalentafter-taxreturn:

FV

RAE=N

T

-1

Taxdrag>Taxrate

PV

longerinvestmenthorizon

higherinvestmentreturn

greatertaxdrag

lowertaxdrag

Accrualequivalenttaxrate:

T=1–RAE/R

AE

24-49

AccrualTaxation

?

Accrualtaxesarepaidperiodically(e.g.,annually)

[(1+R)–RxT]N=[1+R(1-T)]N

?

?

?

FuturevalueAT=PV[1+R(1-T)]N

Taxesarepaideachperiod,sotheperiodicreturnontheaccountistheafter-taxreturn,R(1-T)

Theamountoftaxremovedfromtheaccounteachperioddoesnotearnfuture(compounded)

returns

z

Thereductioninreturncausedbythepaymentoftaxesisreferredtoastaxdrag

?

AccrualTax

1,Taxdrag%>taxrate

2,Investmenthorizonincrease=>taxdrag$&%increase

3,Investmentreturnincrease

=>taxdrag$&%increase

25-49

Deferredcapitalgaintax

Costbasis

UsingTasthetaxrateoncapitalgains,theafter-tax

?

However,thecostbasisisoften

CG

futurevalueinterestfactorfordeferredcapitalgains

differentfromtheinvestment’s

currentvalue.Forexample,the

costbasiscouldbetheoriginal

purchasepriceandthecurrent

valueof$1,000representsthe

originalcostplusunrealizedcapital

gains.

Allelseequal,reducingthecost

basisincreasestherealizedcapital

gain,increasestheamountof

capitalgainstaxesdue,and

reducesthenetsellingprice.Thus

wemodifyourdeferredcapital

gainstaxformulatoaccountfor

thebasis(B):

(FVIF)is:

CGT

FVIF

CGT=(1+R)N–[(1+R)N-1]xTCG=(1+R)N–TCGx(1+R)N+

T

CG

=[(1+R)N(1?TCG)+TCG

]

Summarizingthesamethreerelationshipsweexaminedfor

accrualtaxes,weseethattheyarequitedifferentwhen

capitalgainstaxesareappliedonadeferredbasis:

1.Taxdrag%=taxrate.

2.Astheinvestmenthorizonincreases?taxdrag%is

unchanged.

3.Astheinvestmentreturnincreases?taxdrag%is

unchanged.

Inaddition,whentaxesaredeferred:

4.Asinvestmenthorizonincreases?thevalueofthetax

deferralincreases.

5.Asinvestmentreturnincreases?thevalueofthetax

deferralincreases.

?

FVIF

T

=[(1+R)N(1?TCG)]+

CGT,MV≠Basis

B

CG

=[(1+R)N(1?TCG)]+TCG–(1-B)TCG

26-49

Wealth-basedtaxes

?

Insomecountries,wealth-basedtaxesareassessedannually(similartoaccrualincome

taxes)onthevalueofassetsheld.Unlikeaccrualtaxesandcapitalgainstaxes,whichare

paidonjusttheinvestmentreturn,wealth-basedtaxesareappliedtoboththeprincipal

andreturn.Theyaremostoftenappliedtorealestate,asintheU.K.Fortunatelythe

wealth-basedtaxrateisusuallylowerinpercentagetermsthanaccrualandcapitalgains

taxrates.

?

ContinuingthenotationfrombeforeexceptthatTWisthewealth-basedtaxrate,the

futurevalueinterestfactorafterthewealth-basedtax(FVIFWT)is:

FVIFWT=[(1+R)(1?T)]N

W

Forwealth-basedtaxes,thethreeprimaryrelationshipscanbesummarizedas:

1.Taxdrag%>taxrate.

2.Asinvestmenthorizonincreases?taxdrag%andtaxdrag$increase.

3.Asinvestmentreturnincreases?taxdrag$increases;taxdrag%decreases.

27-49

Accrualequivalentafter-taxreturns

?Accrualequivalentafter-taxreturn:theannualreturnthatproducesthesame

terminalvalueasthetaxableportfolio.YoucanthinkitasEffectiveannualreturn

?FV=PV(1+r)N

zUsetheFVIFinthepreviousexample=$181,855

T

zPV=$100,000

zN=8

zRAE=7.76%

28-49

Accrualequivalenttaxrates

Usingtheaccrualequivalentafter-taxreturn,wecancalculateanaccrualequivalent

taxrate.Theaccrualequivalenttaxrate(TAE)isthetaxratethatmakesthepre-tax

return(R)equaltotheaccrualequivalentafter-taxreturn(RAE).Thinkofitasthe

overalleffectivetaxrateontheaccount,consideringbothaccrualanddeferredtaxes:

R

AE

?

RAE=R(1-T)?TAE=1–

AE

R

29-49

TaxesandPrivateWealthManagement

TaxAdvantagedAccounts

TaxesandInvestmentRisk

?

?

Iftaxedannually,thegovernmentbears

partoftheinvestmentrisk

?Tax-deferredaccount(TDA):

FVIFTDA=(1+R)N(1-T)

N

IftaxedsolelyasincomeattherateofTI

andthepre-taxstandarddeviationofreturn

?Tax-exemptaccount(TEA):

FVIFTEA=(1+R)N(1-T)

isσ,theinvestor?safter-taxriskisσ(1–T)

0

I

?

Ifheldinatax-exemptaccount,the

investorbearsalltheinvestmentrisk,and

thevariabilityofreturnsisnotreducedby

taxes.AndsodoTDA

TEAseemstoresultinthehighestfuture

accumulationbecausetheyaretaxfree,

butTDAprovidesanimmediatesavings

intaxwhileTEAisfirstsubjecttothe

currentincometax.Sotheonlydifferent

betweenaccumulationsinthetwo

TaxAlpha

Tominimizetax,aninvestorwilllocateheavily

taxedassetsintaxadvantagedaccountsand

holdlightlytaxedassetsintaxableaccounts.

Thevaluecreatedbytheeffectivetax

managementofinvestmentsecuritiesisthe

taxalpha.

accountsisthecurrenttaxrates(T)and

0

futuretaxrates(T).

N

30-49

TaxesandPrivateWealthManagement

TaxLossHarvesting

TradingBehavior

1.Usinginvestmentlossestooffsetinvestmentgainsor

incomeforataxsavings,butthetotaltaxesovertime

areunchanged.

2.Thegovernmentmayplacelimitsontheamountof

lossesthatcanberecognizedorthetypeofgainitcan

offset.

?

?

Traders:tradefrequentlyandpay

thehighesttaxesduetoshort-term

gainstaxedonanannualbasis

Activeinvestors:tradeless

frequentlythantraderssothat

manyoftheirgainsaretaxedat

lowerrates

Highest-in,First-out(HIFO)TaxLotAccounting

1.Aninvestorliquidatestheportionofapositionwith

thehighestcostbasisfirsttominimizecurrenttaxes,

butthetotaltaxesovertimeareunchanged.

2.Iffuturetaxesareexpectedtobehigher,itisoptimal

touselowest-in,first-out(LIFO)accountingto

postponetaxlossharvestingandtoliquidatelowcost

basisstocknow.

?

?

Passiveinvestors:buyandhold

equitysothatgainsaredeferred

long-termandtaxedatpreferential

ratesuntilrealized

3.Volatilesecuritypriceshavethemostpotentialfor

Exemptinvestors:holdalltheir

investmentsintax-exempt

accountstoavoidalltaxation

altogether

creatingtaxalpha.

HoldingPeriodManagement

1.Mostcountriestaxshort-termcapitalgainsatahigher

ratethanlong-termcapitalgains.Sothiscreates

opportunitiesforholdingperiodmanagement.

31-49

4.Estate

Planning

32-49

Domesticestateplanning

?

?

Estate:allofthepropertyapersonownsorcontrols.

?

?

Soleownership:thetransferis

dictatedbythedecedent’swill

(or,intheabsenceoftheir

dispositionunderthe

decedent’swill,applicable

intestacylaw)throughthe

probateprocess.

Jointownershipwithrightof

survivorship:automatically

transfertothesurvivingjoint

ownersoutsidetheprobate

process.

Estateplanning:theprocessofpreparingforthe

dispositionofone’sestateupondeathandduring

one’slifetime.

Will:outlinestherightsotherswillhaveoverone’s

propertyafterdeath.

Probate:thelegalprocesstoconfirmthevalidityof

thewill.

Adecedentwithoutavalidwillorwithawillthatdose

notdisposeiftheirpropertyisconsideredtohave

diedintestate

?

?

?

Thelegalconceptofatrustisuniquetothecommonlaw.Civillawcountriesmaynotrecognizetrusts

atall.

?

?

?

Underforcedheirshiprules,wealthyindividualsmayattempttoreduceaforcedheirshipclaimby

giftingordonatingassetstoothersduringtheirlifetimetoreducethevalueofthefinalestate

upondeath.

Communitypropertyregimes:giftsandinheritancesreceivedbeforeandaftermarriagemaystill

beretainedasseparateproperty;upondeathofaspouse,thepropertyisdividedandtheother

halfistransferredbythewill.

Separatepropertyregimes:enableseachtodisposeofpropertyastheywish,subjecttoaspouse’s

otherrights.

33-49

Domesticestateplanning

?

?

Corecapital:theamountofcapital

requiredtomaintainagivenlifestyle

andprovideadequatereservesfor

unexpectedcommitments.

Excesscapitalrepresentsassetsabove

andbeyondcorecapitalthatcanbe

safelytransferredwithoutjeopardizing

thefirstgeneration’slifestyle.

Transferringexcesscapital

z

z

z

Tax-freegifts

Taxablegifts

Generationskipping:Transferringcapitalin

excessofasecondgeneration’sneedand

flexibilitydirectlytothethirdgenerationor

beyond(generationskipping)canhelpto

minimizetaxeswherepermitted.

z

Spousalexemptions:Taxpayersinjurisdictions

withbothspousalexemptionsandexclusionsfor

smallerestatesineffecthavetwoestate

Estimatecorecapital

?Mortalitytables

exclusionsavailable—oneforeachspouse.

P(Survival)=P(HusbandSurvival)+P(Wife

Survival)-P(HusbandSurvival)hP(Wife

Survival)

z

z

z

Valuationdiscounts:Poolingtogetherfamily

(excess)funds(FamilyLimitedPartnership(FLP))

andInvestinginMinorityInterests

p(survival)uspending

N

|

PV(spendingneed)=

j

j

Deemeddispositions:triggerrealizationofany

previouslyunrecognizedcapitalgainsand

liabilitiesforassociatedcapitalgaintax

1

r

j

j

1

?MonteCarloanalysis

Estimatethesizeofaportfolioneededto

generatesufficientwithdrawalstomeetexpenses,

ratherthandiscountingfutureexpenses.

Charitablegratuitoustransfers

34-49

Transferringexcesscapital

?

?

Tax-freegifts

FVgift

[1r(1t)]

g

ig

n

RV

TaxFreeGift

FVbequest[1r(1t)]

n

(1T)

e

ie

e

Taxablegifts

FVgift

[1r(1t)]

g

ig

n

(1T)

g

paidbythereceipient:RV

TaxableGift

FVbequest

[1r(1t)]

n

(1T)

e

ie

e

FVgift

[1r(1t)](1TgTT)

ge

g

ig

n

paidbythedonor:RV

TaxableGift

FVbequest

[1r(1t)](1T)

n

e

ie

e

?

Charitablegratuitoustransfers

1

r

T>1

r

1t

@

1T

n

n

FV

RVCharitableGift

CharitableGift

g

oi

e

ie

e

>



@

1

r1

t

n



1

T

e

FVBequest

e

ie

35-49

Cross-borderestateplanning

Taxsystem

Doubletaxation

?

Sourcejurisdiction(territorial

taxsystem):taxesincomeasa

sourcewithinitsboarders.

?

Residence-residenceconflict:theindividual’s

worldwideincometotaxationbyboth

countries.

?

Source-sourceconflict:incomefroma

companysituatedincountryAbutmanaged

fromcountryB.Bothcountriesclaimthatthe

companyincomeisderivedfromtheir

jurisdiction.

Residence-sourceconflict:anindividualin

countryAmaybesubjecttoresidence

jurisdiction,whilesomeassetsmaybelocated

incountryBwhichissourcejurisdiction.

?

Residencejurisdiction:impose

taxbasedonresidency.

Taxavoidance:developingstrategies

thatconformtoboththespiritand

theletterofthetaxcodesof

?

jurisdictionswithtaxingauthority.

Taxevasion:circumventingtax

obligationbyillegalmeans.

Solvingwithconflicts

T

=max[Tresidence,T

]

creditmethod

source

T

=T

source

exemptionmethod

T

=T

+Tsource(1T

)

deductionmethod

residence

residence

=T

+T

source

TresidenceT

source

residence

36-49

2011AMQ1A

Trusts&lifeinsurance

?

?

Revocabletrust,thesettlorcanrescindthetrustandisconsideredthelegalowneroftheassetsfor

taxpurposes.

Irrevocabletrust,thesettlorrelinquishesownership&control.

?

Thetrusteeisconsideredtheowneroftheassetsfortaxpurposes.Anirrevocabletrust

protectsthetrustassetsfromclaimsagainstthesettlor.

?

Fixedtrust,thepatternofdistributionstothebeneficiariesispredeterminedbythesettlorand

incorporatedintothetrustdocuments.

?

?

Discretionarytrust,thetrusteedetermineshowtheassetsaredistributed.

Spendthrifttrustisusedtotransferassetstoabeneficiarywhoistooyoungorisotherwiseunable

tomanagetheassets.

?

?

Premiumspaidonlifeinsurancearenotusuallyconsideredpartofthegrantor’sestatefortax

purposes,butaresometimesconsideredgiftstothebeneficiary.

Inmostjurisdictions,lifeinsuranceproceedspasstobeneficiarieswithouttaxconsequences,and,

dependingonjurisdiction,thepolicymightprovidetax-freeaccumulationofwealthand/orloansto

thepolicyholderonbeneficialterms.

?

Byestablishingatrustonbehalfofthebeneficiariesandmakingthattrustthedirectbeneficiaryof

alifepolicy,thepolicyholdertransfersassetstoyoung,disabled,etc.,beneficiariesoutsidethe

probateprocess.

37-49

5.Concentrated

Single-Asset

Positions

38-49

Issuesinmanagingconcentratedpositions

?

?

Commonobjectives

z

z

z

Reducedtheriskcausedbythewealthconcentration.

Generateliquiditytomeetdiversificationorspendingneeds.

Optimizetaxefficiencytomaximizeafter-taxendingvalue.

Specificobjectivesandconstraints:

z

Restrictionsonsale.Stockownershipinapubliccompanymaybereceivedbya

companyexecutiveaspartofacompensationpackage,withcompanyexpectationsor

regulatoryrequirementsthattheexecutivewillholdthestockforacertainlengthof

time.

z

z

Adesireforcontrol.Majorityownershipbringscontroloverthebusiness.

Tocreatewealth.Anentrepreneurmayassumehighspecificriskinexpectationof

buildingthevalueofthebusinessandhiswealth.

z

Theassetmayhaveotheruses.Realestateownedpersonallycouldalsobeakeyasset

usedinanotherbusinessoftheowner.

?

?

Taxliabilityofalargecapitalgainsistriggeredbysalesofaconcentratedposition.

z

Alargeconcentratedpositionisoftenaccumulateandheldformanyyears,resultingina

zeroorlowtaxbasis.

Illiquidityand/orhightransactioncostscanbeafactorevenifthereisnotaxdue.

z

z

z

Apubliccompanytradingwithinsufficientvolumemayrequireapricediscounttosell.

Theexpenseoffindingabuyerforaprivatebusinessorrealestatecanbesubstantial.

Theintendedusebytheprospectivebuyermayaffecttheprice.

39-49

Techniquestomanageconcentratedposition

?Threebroadtechniques:

zSelltheasset:thiswilltriggerataxliabilityandlossofcontrol.

zMonetizetheasset:borrowagainstitsvalueandusetheloanproceedsto

accomplishclientobjective