Relative Value Formulas - Estate Planning

Is anyone else having trouble remembering/understanding these? If anyone could link or be kind enough to explain that would be great

Punting those out. Havent even seen them in mocks or past AMs… Will probably cost max ( 2 X 3 ) 6 points on D-Day…

Hmm you’re probably right - there’s bigger fish to fry. I might try and spend 30 mins reading CFAI on it.

Question 2 on 2013 AM references the formulas, sort of…

I am not going to write down the proper formulas here and I doubt the exam will require to calculate relative value. Rather, you will have to decide whether to gift now or bequest. The variables that will affect your decision are:

  • Is gift tax greater than estate tax?
  • Is the tax paid by the receiver?

Use arithmetic to decide on the above given that:

  • Gift tax is in the numerator and estate tax in the denominator…
  • If tax paid by receiver the numerator increases…

Simple really, worth potentially 6-9 marks.

Thanks for this - yeah it’s actually not that bad at all, the formulas just look ugly.

I had a quick read of the curriculum on this too, they explain it pretty well. Agreed - it’s a nice one to have up the sleeve!!

If tax is paid by receiver wouldn’t the numerator decrease by the amount of the tax making it relatively less attractive when compared to a bequest?

Deliberate mistake to check alertness of the forum :blush:

Correct. Numerator will be comparatively greater when tax is paid by the donor vs the receiver.

The denominator is same in all formulas, (1+Rie(1-Tie))N (1-Te)

The numerator is playing with Tax or Tax credit effects on always same base (1+Rig(1-Tig))N

thus combinations are:


or with just added suffixes

(1+Rig(1-Tig))N (1-Tg)


(1+Rig(1-Tig))N (1-Tg+TgTe)

the concern is distinguish between Rig and Rie and applicable taxes.