Private Wealth Management Flashcards

Question

Community property and forced heirship allocation

Answer 1

* The spouse has the right to the greater of the community property or forced heirship * Each child has the right to the total forced heirship amount divided by the number of children

Answer 2

Under forced heirship rules, children have the right to a fixed share of a parent’s estate

Answer 3

* r is the arithmetic return * σ is the volatility of the arithmetic return

Answer 4

* T_e is the estate tax * t_ig and t_ie are the effective tax rates on investment returns on both the gift recipient and the estate making the gift

Answer 5

* T_e is the estate tax * T_g is the gift tax * t_ig and t_ie are the effective tax rates on investment returns on both the gift recipient and the estate making the gift

Answer 6

* g/e = percentage of giver's wealth being gifted

Answer 7

The deemed disposition triggers the realization of any previously unrecognized capital gains and liability for associated capital gains tax **as if the property were sold**

Answer 8

* T_oiis the tax on ordinary income

Answer 9

* = 1 / (1 − T₁) where T₁ is the tax rate of capital transferred from the first to the second * In at least one jurisdiction (e.g., the United States), the taxing authorities discourage this strategy by imposing a special generation skipping transfer tax

Answer 10

* Common law concept * Civil law concept

Answer 11

* Is created by the **settlor** (or **grantor**) * Assets are being transferred to a **trustee** * Assets are being managed for the **beneficiaries**

Answer 12

* The settlor retains the right to rescind the trust relationship and regain title to the trust assets and is generally considered to be the owner of the assets for tax purposes * The trustee may be responsible for tax payments and reporting in his or her capacity as owner of the trust assets for tax purposes * The terms of the distributions are pre-determined in the trust documents * The terms of the distributions are at the discretion of the trustee

Answer 13

A company located outside a taxpayer’s home country and in which the taxpayer has a controlling interest as defined under the home country law

Answer 14

When shareholders of a CFC company are taxed on the company’s earnings as if the earnings were distributed to shareholders even though no distribution has been made

Answer 15

* A country that taxes income as a source within its borders * A country that taxes income based on residency

Answer 16

* T_CreditMethod= Max [T_Residence , T_Source] * T_{ExemptionMethod}= T_Source * T_{DeductionMethod}= T_Residence+ T_Source(1 - T_Residence) = T_Residence+ T_Source- T_ResidenceT_Source

Answer 17

* Developing strategies that conform to both the spirit and the letter of the tax codes of jurisdictions with taxing authority * Circumventing tax obligations by illegal means such as misreporting or not reporting relevant information to tax authorities

Answer 18

To monetize something is to access its cash value without transferring ownership of it, as would be the case in a sale

Answer 19

* Depends on strict rules dealing with the use of the loan * Depends on the risk associated with the loan

Answer 20

Collar and loan combined within a single instrument

Answer 21

* Primary capital * Personal risk * Market risk * Surplus capital * Aspirational risk

Answer 22

* **Personal risk** → Home, treasury bills and other "safe havens" investments * **Market risk** → Stocks and bonds * **Aspirational risk** → Concentrated positions, investment real estates, stock options and the like

Answer 23

The advantage to the client is to see how high priority goals are less likely to be endangered by market declines and, thus, help the client stick with the investment plan during stressful market periods

Answer 24

* Assets held outside a concentrated position that are at least sufficient to provide for the owner’s lifetime spending needs (personal and market risk bucket) * Capital that is in excess of primary capital

Answer 25

A plan usually involving a corporation, partnership, or limited liability company with the goal to transfer future appreciation to the next generation at little or no gift or estate tax cost

Answer 26

* Equity monetization * Hedging * Yield enhancement

Answer 27

* Short sale against the box * Total return equity swap * Forward conversion with options * Equity forward sale contract

Answer 28

* Purchase of puts * Cashless (zero-premium) collars * Prepaid variable forwards

Answer 29

The protection disappears before its stated expiration if the stock price reaches a certain level

Answer 30

* Long put * Short call * The premium paid on the put is offset by the premium received on the call

Answer 31

A collar and loan combined within a single instrument

Answer 32

The potential tax inefficiency that can result if the instrument being hedged, and the tool that is being used to hedge it, produce income and loss of a different character

Answer 33

A hedge involving a hedging instrument that is imperfectly correlated with the asset being hedged; an example is hedging a bond investment with futures on a non-identical bond

Answer 34

* A buyer that will benefit from synergies * A buyer focused on investment management

Answer 35

A leveraging of a company’s balance sheet, usually accomplished by working with a private equity firm

Answer 36

Upon death of the grantor, the shares received by the estate or beneficiaries would receive a tax cost basis equal to the fair market value on the date of the grantor's death

Answer 37

A fund administered by a tax-exempt entity in which the donor advises on where to grant the money that he or she has donated

Answer 38

A transaction wherein the owner of a property sells that property and then immediately leases it back from the buyer at a rate and term acceptable to the new owner and on financial terms consistent with the marketplace

Answer 39

The net present value of an investor’s future expected labor income weighted by the probability of surviving to each future age

Answer 40

The tangible and intangible assets (outside of human capital) owned by an individual or household

Answer 41

* w_tis the wage in year t

Answer 42

* y is the risk adjustment based on occupational income volatility * p(s_t) is the probability of surviving to a given year (or age)

Answer 43

* Personnal assets * Investment assets * Publicly traded marketable assets * Non-publicly traded marketable assets * Real estate * Annuities * Cash-value life insurance * Business assets * Collectibles * Non-marketable assets * Employer pensions * Government pensions

Answer 44

* Education phase * Early career * Career development * Peak accumulation * Pre-retirement * Early retirement * Late retirement

Answer 45

* Earning risk * Premature death risk * Longevity risk * Property risk * Liability risk * Health risk

Answer 46

* Temporary * Term * Permanent * Whole * Universal

Answer 47

* Mortality expectations * Discount rate * Loading

Answer 48

The amount of a loss that must be absorbed by the policy owner before the insurance company will make any payment

Answer 49

* Collision coverage * Comprehensive coverage (other sources)

Answer 50

Refers to liability insurance that is in excess of specified other policies and also potentially primary insurance for losses not covered by the other policies

Answer 51

* Immediate versus deferred * Fixed versus variable

Answer 52

The individual permanently exchanges a lump sum for a contract that promises to pay the annuitant an income for life

Answer 53

An add-on provision to a basic insurance policy that provides additional benefits to the policyholder at an additional cost.

Answer 54

Involves the permanent exchange of a lump sum for an insurance contract that promises to pay an income

Answer 55

* Risk avoidance * Risk transfer * Risk retention * Loss prevention * Loss reduction

Answer 56

Investors can enhance the yield of a concentrated stock position while decreasing its volatility by writing covered calls against some or all of the shares

Answer 57

* r is the risk-free rate

Answer 58

* The amount of capital required to fund spending to maintain a given lifestyle * The amount of capital in excess of core capital

Answer 59

* MCS focuses the client and manager on the most important risk, outliving the assets, instead of short term volatility * MCS can visually display for the client the prospects of outliving the assets * MCS can incorporate path dependency issues such as how changes in inflation affect both distributions and market value * MCS can incorporate taxes and other factors in addition to return

Answer 60

* Reduce the risk of wealth concentration * Generate liquidity in order to diversify and satisfy spending needs * Optimize tax efficiency

Answer 61

* Counterparty Credit Risk * Ability to Close Out Transaction Prior to Stated Expiration * Price Discovery * Transparency of Fees * Flexibility of Terms * Minimum Size Constraints

Answer 62

* Writing covered calls

Answer 63

* Indemnity plan * Preferred provider organization (PPO) * Health maintenance organization (HMO)

Answer 64

* Net payment cost index calculation * Surrender cost index calculation

Answer 65

1. Find the total insurance cost: 1. Compute the FV of premiums (beginning of period) 2. Substract the FV of dividends (end of period) 3. Substract the projected cash value at the end of the policy (surrender method only) 2. Find the annuity payment require for the total insurance cost (beginning of period) 3. Divide by the number of thousand dollars of face value

Answer 66

Net worth from the traditional balance sheet + (Present value of future earnings + Present value of unvested pension benefits) – (Present value of consumption goals + Present value of bequests)

Answer 67

A deferred annuity with payments starting late in life in order to protect against longevity risk

Answer 68

* **Needs analysis** estimates the present value of future consumption that would need to be replaced if the income of a primary earner were lost * **Human life value analysis** seeks to replace the loss in human capital

Answer 69

* With recourse mortgages, the lender has the right to recover any amount due on the loan from the borrower * With non-recourse mortgages, the lender's collateral is limited to the property being mortgaged

Answer 70

Is more complex for private client investors than for institutional investors because of emotional considerations and the possibility of shifting time horizons should an investment not perform

Answer 71

Flat heavy tax regimes often include exemptions of some types of bond interest

Answer 72

* Net wealth is for the economic (holistic) balance sheet * Net worth is for the traditionnal balance sheet

Private Wealth Management Flashcards

(99 cards)