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Study Session 4-5: Private Wealth Management

Q on irrevocable and revocable trust 2011 AM exam

I did not nderstand the answer for Objective 1 .

My way of solving this puzzle was this:

The irrevocable trust had no estate taxes but would be charged a cost basis of $100 k on the remaining $1 million.

The revocable trust would be charged 20% estate taxes buts its cost basis would rise to market value ,i.e. no capital gains tax.

So the revocable trust would be charged $0 in capital gains tax and  $200k in estate tax   upon Becker’s death

Ability to take risk

Want to canvas the consensus for considering size of spending needs relative to portfolio size sufficient to deem an individual to have a below-average ability to accept risk. I understand that ability to take risk is also a function of time horizon, imprortance of goals, flexibility etc., but at what required rate of return do you deem the person to have a below-average ability to assume risk (assume long time-horizon)?


source vs. residence principle

i am totally confused by the residence and source jurisdiction.

i am refering to  exercise 4 in reading 12, p. 320 of cfa readings

country A 45% taxes

country B 30% taxes

“after 5 decades of living in country A, a wealth entrepreneur, Andrew, has recently retired and taken up residency in country B. he no lives in country B, but has investments in country A.

let’s assume country A were to exercise residence jurisdiciton and country B source jurisdiction, the effective tax rate:

t credit method = max ( t residence, t source)

Tax systems in different countries

Where can I find the Appendix A, B, C mentioned in Reading 12 with regards to tax systems of different countries? can not find it in the book! thank you! p- 314 cfa institute

Reading 17 low basis stock


Q1: I dont fully understand the meaning of completion portfolios , also

when the book talks about the single asset completion portfolios, it talks about investing different industries alongside the low basis stock. Does that mean multi-asset class ?

Q2: a constuctive sale is allowed for average investors, but not for investors with low basis stocks? how does IRS differentiate these two investors?

my head doesnt go straight today


What is liquidity constraint in my case?

 Assume a client has a job and has USD5,000 as his savings.  But his annual salary does not cover the annual living expenditure by USD15,000.  His total investable asset base is USD1,000,000 (including the above savings).

1) One time planned expenditure:
(a) He needs to pay his income tax of USD6,000 in 1 month.
(b) He intends to denote USD3,000 to a charitable institution in 2 month.

2) Recurring expenditure:
His family living expenditure for USD80,000 a year.

3) Others:
He want to make a contingency reserve of USD20,000 a year.