with 3 weeks until the exam, I think is a good idea to read volkov´s comments about trusts hope you “refresh”… this post is actually more usefull than several pages of schweser/cfa thx
volkovv, When they say that a trust is defective, it is defective from whose viewpoint IRS, Trust or grantor?
it is defective from IRS standpoint GRATs are usually created to be defective from income tax standpoint, and that allows grantor to transact with the GRAT like he is transacting with himself, and IRS doesn’t view these transactions as taxable events
I think if you know a GRAT is defective, and generates tax alpha if and only if the donor pays the tax, you are golden.
hala_madrid Wrote: ------------------------------------------------------- > with 3 weeks until the exam, I think is a good > idea to read volkov´s comments about trusts > > hope you “refresh”… this post is actually more > usefull than several pages of schweser/cfa agree. I planned to give up GRAT and defective trust but after reading this thread, I would be happy to see a agree/disagree question on this. thanks guys. - sticky
I doubt these will be heavily tested on the exam since they’re very US-centric and the CFA exam is a global exam.
pimp Wrote: ------------------------------------------------------- > I doubt these will be heavily tested on the exam > since they’re very US-centric and the CFA exam is > a global exam. hmmm … agree. But since this material is new, I think there must be some way CFAI can test this … Any speculation as to how, from a non-US perspective? - sticky
Not sure how they would test it, but since it is pure memorization, I will spend no more than 10 minutes on it just a few days before the exam.
One more question, Volkovv. Defective trust can take advantage of valuation discount, but (paragraph 4 under foundation, p.243, vol 2) “valuation discounts are typically not applicable to foundations”. Why? - sticky
The point of valuation discount is to minimize tax liability of the entity to which the funds are given (i.e., defective trust in your question). With valuation discount, you pass assets to an entity below their vair value (for instance because of illiquidity). Since foundations are tax exempt entities (usually), tax advantaged strategies provide little to no value to them.
Doesn’t the foundation issue also relate to wanting the maximize the value of assets you’re contributing to the foundation to maximize the tax deduction? In other words, you wouldn’t want to use a valuation discount when establishing a foundation. PS Great stuff above volkovv.
MaxTheDog Wrote: ------------------------------------------------------- > Doesn’t the foundation issue also relate to > wanting the maximize the value of assets you’re > contributing to the foundation to maximize the tax > deduction? In other words, you wouldn’t want to > use a valuation discount when establishing a > foundation. that is true too