Private Wealth Mgt (1)

Question 1

•••••••Private Wealth•••••••

Safety 1st rule (shortfall risk)

Answer 1

If E (r) - 2σ > client threshold return = accept portfolio

Question 2

•••••••Private Wealth•••••••

Deterministic Model of Asset Allocation vs Monte Carlo

Answer 2

Deterministic = MVO, hist. returns

Monte Carlo = Probability Allocation model, path dependent. Multifactor model that includes tax, savings, mkt conditions, and others.

Question 3

•••••••Private Wealth•••••••

Prob. (joint survival)

Core Capital - 2 options + how to calc

Answer 3

Core Capital with Mortality Tables

• Prob. (joint survival) = p(Husband) + p(Wife) - [p(Husband) * p(Wife)]
• Core Capital_{n years} = ∑ P (surv_t)(spending_t) / (1+rf)^t
• May be adjusted for safety reserve (spending) or Ocupational Income volatility (added to rf)
• Includes + cash flow (such as salary)

Core Capital with Monte Carlo Analysis

Question 4

•••••••Private Wealth•••••••

RV _TaxFreeGift

Answer 4

Question 5

•••••••Private Wealth•••••••

RV _{TaxableGift (recipient pays)}

Answer 5

Question 6

•••••••Private Wealth•••••••

RV _{TaxableGift (donor pays)}

Answer 6

Question 7

•••••••Private Wealth•••••••

RV _{CharitableGift}

Answer 7

Question 8

•••••••Private Wealth•••••••

Source Jurisdiction vs Residence Jurisdiction

3 Tax Conflict Solutions

(1) Credit Method
(2) Exemption Method
(3) Deduction Method

Answer 8

• Source jurisdiction (territorial system) - income generated within borders, whether by citizens or foreigners.
• Residence jurisdiction - income of its residents

(1) Credit Method

T_CreditMethod = Max [T_Residence , T_Source]

(2) Exemption Method

T_{ExemptionMethod} = T_Source

(3) Deduction Method

T_{DeductrionMethod} = T _Residence + T_Source - (T _Residence * T_Source)

Question 9

•••••••Private Wealth•••••••

Estate Planning Tools

Answer 9

1. Trusts - grantor (settlor) transfer assets to beneficiaries outside of the probate process.
   
   1. Revocable/Irrevocable
   2. Avoid probate, make resources available to beneficiaries w/o yielding control
2. Foundations
3. Life Insurance
4. Controlled Foreign Corp.

Question 10

•••••••Private Wealth•••••••

Wealth-Based Taxes

Answer 10

FVIFAT = [(1 + r)(1 − t_w)]ⁿ

Question 11

•••••••Private Wealth•••••••

Deferred Taxes

Answer 11

FV = [(1 + r)ⁿ (1 − t_cg) + t_cgB]

Question 12

•••••••Private Wealth•••••••

Accrual Taxes

Answer 12

FV = [1 + r (1 − t_i)]ⁿ