Chapter 21-22 Private Wealth Management Flashcards
CFAI Private Wealth Management Flashcards
After-tax excess return
Calculated as the after-tax return of the portfolio minus the after-tax return of the associated benchmark portfolio.
Asset location
The type of account an asset is held within, e.g., taxable or tax deferred.
Bequest
The transferring, or bequeathing, of assets in some other way upon a person’s death. Also referred to as a testamentary bequest or testamentary gratuitous transfer.
Capital gain or loss
For tax purposes equals the selling price (net of commissions and other trading costs) of the asset less its tax basis.
Capital needs analysis
Capital sufficiency analysis.
Capital sufficiency analysis
The process by which a wealth manager determines whether a client has, or is likely to accumulate, sufficient financial resources to meet his or her objectives; also known as capital needs analysis.
Charitable gratuitous transfers
Asset transfers to not-for-profit or charitable organizations. In most jurisdictions charitable donations are not subject to a gift tax and most jurisdictions permit income tax deductions for charitable donations.
Charitable remainder trust
A trust setup to provide income for the life of named-beneficiaries. When the last named-beneficiary dies any remaining assets in this trust are distributed to the charity named in the trust, hence the term charitable remainder trust.
Completion portfolio
Is an index-based portfolio that when added to a given concentrated asset position creates an overall portfolio with exposures similar to the investor’s benchmark.
Controlled foreign corporation
(CFC) A company located outside a taxpayer’s home country in which the taxpayer has a controlling interest as defined under the home country law.
Deferred annuity
An annuity that enables an individual to purchase an income stream that will begin at a later date.
Discretionary portfolio management
An arrangement in which a wealth manager has a client’s pre-approval to execute investment decisions.
Discretionary trust
A trust that enables the trustee to determine whether and how much to distribute based on a beneficiary’s general welfare.
Double taxation
A term used to describe situations in which income is taxed twice. For example, when corporate earnings are taxed at the company level and then that portion of earnings paid as dividends is taxed again at the investor level.
Equity monetization
A group of strategies that allow investors to receive cash for their concentrated stock positions without an outright sale. These transactions are structured to avoid triggering the capital gains tax.
Estate
Consists of all of the property a person owns or controls, which may consist of financial assets (e.g., bank accounts, stocks, bonds, business interests), tangible personal assets (e.g. Artwork, collectibles, vehicles), immovable property (e.g., residential real estate, timber rights), and intellectual property (e.g., royalties).
Estate planning
The process of preparing for the disposition of one’s estate upon death and during one’s lifetime.
Estate tax
Levied on the total value of a deceased person’s assets and paid out of the estate before any distributions to beneficiaries.
Exchange fund
A partnership in which each of the partners have each contributed low cost-basis stock to the fund. Used in the United Sates as a mechanism to achieve a tax-free exchange of concentrated asset position.
Family constitution
Typically a non-binding document that sets forth an agreed-upon set of rights, values, and responsibilities of the family members and other stakeholders. Used by many wealth- and business-owning families as the starting point of conflict resolution procedures.
Family governance
The process for a family’s collective communication and decision making designed to serve current and future generations based on the common values of the family.
Financial capital
The tangible and intangible assets (excluding human capital) owned by an individual or household.
Fixed trust
Distributions to beneficiaries of a fixed trust are specified in the trust document to occur at certain times or in certain amounts.
Forced heirship
Is the requirement that a certain proportion of assets must pass to specified family members, such as a spouse and children.
Foundation
A legal entity available in certain jurisdictions. Foundations are typically set up to hold assets for a specific charitable purpose, such as to promote education or for philanthropy. When set up and funded by an individual or family and managed by its own directors, it is called a private foundation. The term family foundation usually refers to a private foundation where donors or members of the donors’ family are actively involved.
Generation-skipping tax
Taxes levied in some jurisdictions on asset transfers (gifts) that skip one generation such as when a grandparent transfers asset s to their grandchildren. (see related Gift Tax).
Gift tax
Depending on the tax laws of the country, assets gifted by one person to another during the giftor’s lifetime may be subject to a gift tax.
Human capital
An implied asset; the net present value of an investor’s future expected labor income weighted by the probability of surviving to each future age. Also called net employment capital.
