Estate Planning in a Global Context Flashcards
How do common and civil law differ in estate planning?
- Common law typically allow people to do whatever they want with assets, but civil law will have rules such as forced heirship
Common law determines laws through decisions of the court
What are the regimes of marital property rights?
- Community property - everything is split
2. Separate property regimes
What are the two types of wealth transfer taxes?
- Lifetime (intervivos) gratuitous transfers - max or may not be taxed
- Testamentary gratuitous (dead) transfers - may be taxed in the transferor or recipient
Could be a threshold amount, different types of tax (flat vs progressive)
What is the difference between core and excess capital?
Excess capital is able to be transferred to someone else without sacrificing lifestyle
How do we typically calculate core capital needs?
We take expected future cash flows * by likelihood of survival + reserves
How do you calculate the probability of a couple surviving?
Probability of each added together, less the probability of them both surviving (multiplied together)
How do you use a safety reserve when planning for core capital?
This is an amount added to core capital to accommodate for poor returns or increases in lifestyle expenses
Typically 2 years of spending
How do you estimate core capital needs using monte carlo?
You will simulate many times to determine 95% confidence amount of capital needed to not run out of money.
What is a community property regime and what implications does it have?
A community property regime means that each spouse has an indivisible one half interest in income earned during a marriage. One half of community property automatically goes to the spouse.
What is a forced heirship rule?
This is when someone is entitled to a percentage of total estate (not community property)
How do you approximate geometric return from arithmetic return and volatility?
Geometric Return = Arithmetic - Vol/2
How do you find the relative value of a tax free gift?
= FV Gift/FV of Bequest = (1+ r(1-tig))^N/((1+r(1-tie))^N(1-Te)
What is the tax credit method of foreign taxes?
Your tax liability will simply be the higher of the two countries, with the taxes already paid being credited towards that rate.
What is the tax exemption method of foreign taxes?
This means that the source of the income collects the taxes and it is exempt from residence country tax
What is the tax deduction method of foreign taxes?
You are able to reduce your taxable income by the amount paid
Taxes = T in residence + T at source -T at source * T in residence
