Estate Planning - R12

Question 1

Explain and determine the core capital of an estate.

Answer 1

The core capital is the amount of capital required to fund spending to maintain a lifestyle, goals, adequate reserves, etc. An investor with more assets than this has excess capital.

Question 2

RV of a Tax-Free Gift

How to calculate?

Answer 2

Step 1: Start by calculating the value in x years, if gifted today:

FV_{tax-free gift} = PV [1 + r_g (1-t_ig)]ⁿ

Step 2: Calculate the value of the stock if held until death and bequeathed as part of the estate:

FV_bequest = PV [1+r_e(1-t_ie)]ⁿ(1-T_e)

RV_{tax-free gift} = FV_{tax-free gift}/ FV_bequest