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30-1 estate planning in a global context (6 cross -border estate …
30-1 estate planning in a global context
2 domestic
estate planning:
somen basic
concepts
estates wills
and probate
estate
financial assets / tangible personal assets / immovable property / intellectual property
a lifetime gratuitous transfer - an inter vivos gift
:all of the property a person owns or controls
estate planning: the process preparing for dispositon of estate unpon death and during lifetime
a will / testament: outlines the rights others will have over one's property after death
probate
some may avoid:
court fees / casuse a delay in the trasnsfer / public record
→：
joint ownership / living trusts / retirement plans
:the legal process to confirm the validity of the will
ways of holding
property in
an estate
sole ownership:
transfer dictated by decedent's will
jpint ownership with right of survivorship
tursts / life insurance / other planning techniques:
outside the probate process / estate planning tools
legal systems
forced heriship
and marital
property regimes
civil law
jurisdictions
place restricitons on disposition
may not recognize foreign trusts
forced heirship rules:
marital property rights
community property regimes
separate property regimes
common law
jurisdictions
generally allow freedom disposition
trust - unique legal concept to common law
income wealth
and wealth
transfer taxes
net worth / wealth tax:
tax based on comprehensive wealth
primary ways of
transferring assets:
bequeathing - testamentary gratuitous transfer
gifting - lifetime gratuitous transfers / inter vivos transfer
tax may applied to transferor or recipient
3 core
capital
and
excess
capital
estimating
core capital
with mortality
tables
the most straightforward way:
PV of anticipated spending over
remaining life expectancy
-will fall short
another approach: PV(Spendingneed)=
∑(p(Survivalj)×Spending_j/(1+r)^j)
p(Survival)=p(Husbandsurvives)+p(Wifesurvives)−p(Husbandsurvives)×p(Wifesurvives)
r: a real risk-free discount rate
safety
reserve
provides a capital cushion
allow first generaton to increase spending
estimating
core capital
with monte
carlo analysis
more fully captures risk inherent in capital markets
higher level confidence lead to larger estimates of core capital
the expected returns derived from market expectations of the assets comprising portfolio
volatility
volatility decrease future accumulations
R_G≅r−0.5*σ^2
the interaction of periodic withdrawals and return sequances
*decrease sustainability of a spending program
→ diversification
unsustainable
spending rate
number of family members grows
potential erosion caused by taxes
conflicting interests within / across generations
key
items
life balance sheet:
a comprehensive accounting of one's assets and liabilities // both explicit and implied
human capital / net employment capital:
PV of one's employment capital
implied liabilities:
capitalized value of desired spending goals
core capital:
capital required to maintain given lifestyle, fund spending goals, provide adequate reserves fro unexpected commitments
excess capital:
more assets than liabilites
safely transferred other jeopardizing lifestyle
6 cross
-border
estate
planning
the Hague Conference
on private international law
the purpose - to simplify or standardize processes and facilitate international trade
tax
system
source jurisdiciton / territorial tax system - that taxes income sourced within its borders
residence jurisdiciton - impose tax based on residency
exit
taxation
on individuals giiving up citizenship or residency
a deemed disposition
double
taxation
conflict
residence-residence:
two claim to have taxing authority over the same income or assets
source-source:
two claim source jurisdicion of hte same asset
residence-source:
subject to residence jurisdiction and asset located source jurisdiciton
foreign tax
credit
provisions
credit
method
T_CreditMethod = Max[T_Residence,T_Source]
completely eliminates double taxation
exemption
method
eliminates residence-source conflict
T_ExemptionMethod = T_Source
deduction
method
T_DeductionMethod =
T_Residence + T_Source(1−T_Residence)
= T_Residence + T_Source − T_Residence*T_Source
double taxation
treaties - DTT
intended to facilitate international trade and investment by eliminating double taxation
trasparency and
offshore banking
tax avoidance
developing strategies that conform to both the spirit and the letter of the tax condes of jurisdicions with taxing authority
tax evasion
the pratice of circumventing tax obligations by illegal means
international
wealth
management
the practice of placing assets in jurisdictions with bank secrecy laws to avoid detecion by taxing authorities in home country
offshore banking centers can be an efficient way
→infor exchange between tax authorities
:assets located in multiple jurisdictions may trigger multiple tax liabilites