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Estate planning (Transferring excess capital (Lifetime gifts = will lower…
Estate planning
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Core/Excess capital
Core capital = expected future cash flow multiply each future cash flow by probability that will be needed (survival probability)
- p(survival) = P(husband survives) + P(wife survives) - p(hus survives) x p(wife survivies)
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Estimate core capital with Monte carlo
- estimate the amount of capital require to sustain a pattern of spending over a time horizon with 95% confidence
Sustainable spending rates
- what % age of capital can be spent each year such that the prob of outliving assets is below some threshold level
Source vs residence
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Residence-residence conflict
- 2 countries claim residence of same person
Source-source conflict
- 2 countries claim source jurisdiction of the same asset
residence-source conflict
- A subject to residence, assets in B subject to source
Credit method
T= max[Tax res, Tax source]
Exemption method
T = Tax source
Deduction method
T= T res + T source -TresTsource
Trusts
- holds and manages the assets of a settlor for the benefit of the beneficiaries
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Advantage
- control -> trusts make resources available to beneficiary without yielding complete control
- asset protection -> irrevocable trust protect assets of the settlor from creditors
- tax reduction - income generated by trusts may be taxed at lower rate
Wealth transfer taxes
lifetime gratuitous transfer
- made during lifetime of the donor
Testamentary gratuitous transfer
- transfer made after death
Insurance
- bypasses probate
- provides creditor protection
- recognized in every country
- used a source of liquidity for a beneficiary