Hey guys, Could someone please help me out with this one… Q2 - Part A - i) Why is Alonso’s advisor correct in this case? I understand that Alonso could use losses to offset gains in his taxable account, but wouldn’t his gains not be subject to tax in the tax-exempt account as well…
This is one with estate tax and deferred capital gain taxes in revocable and irrevocable trust?
As I recall deferred capital gain taxes are the point in A part, not an estate tax. In part B you were asked how to protect against claims, thus for part B irrevocable trust is the answer while in part A revocable trust is correct answer.
Haha no flashback, I believe that’s the 2011 AM. Asking about 2012 buddy, thanks for the attempt at helping! 
Nothing’s subject to tax in a tax-exempt account.
That’s my point S2000, Alonso’s advisor in this case is saying that Alonso’s after-tax return would have been higher if a larger portion of assets had been held in a taxable account… how is that correct!!!
If you lose 10% in a tax-free account, your loss is 10%.
If you lose 10% in a taxable account with taxes of, say, 30%, then your loss is only 7%.
−7% > −10%
I see, it’s a bit counterintuitive as no tax is payable on a loss… so essentially the whole shtick here is to explain that upside and downside risk/return in a taxable account is shared with the taxing authorities, am I understanding this correctly now? Thank you S2000!
You are.
And you’re quite welcome.