In SS4, Estate Planning part of Schweser (Book1, p258), there’s a simple example about the “claw back” provision and I just can’t seem to grasp it for some reason and can’t find it in the CFAi text with a similar one. Could someone please explain this example to me? Why is the estate divided by 3 twice? Since the two original children already have $2,750, why doesn’t the third child just get the remaining $500?

FIRST time, total estate is divided by 3 to determine total estate that will be subjet to forced heirship rules SECOND time, estate subject to forced heirship rule is divided by 3 to determine each childs share. total estate to be distributed under forced heirship among 3 kids: ($2.75 mn + $0.5 mn)*0.33 = $1.0725 mn. each of the three children (including estranged child) is entitled to a minimum share of $1.0725 mn / 3 = $357,500. if 3rd child can get his share without jeopardizing / penalizing the first two kids share (from the remaining portion of the estate), its good. if that wont be possible and say the two kids shared 3 mn of the estate amongst themselves, then third child wont be able to have his share of 357,500. here the claw back provision applies. hope this makes sense.

jeez, CFAI didn’t go into this much detail - unless I was asleep… hopefully if claw-back is tested, it will be conceptual only with no math?!

I am using 2009 Schweser note without this reading in it, so I don’t know what the example is illustrating. It is only stated in CFAI R16 : In a numberv of juridictions, “Claw-back” provisions bring lifetime gifts back into the estate to calculate the child’s share. & … But I did not see any example or EOC queation regarding this.

this topic (estate planning in a global context) was not covered in 2009 cirriculum. its advisable to check this out from new cirriculum.

Thx l3aspirant. But the first time when the estate was divided by 3, where does the other 2/3 go? And could you tell me what the first two children get under “normal” forced heirship rule?

the remaining 2/3rd of deceased’s estate can be disposed off as per the remaining provisions of the will. but in this case, it provides for distributing $2.75 mn among 2 kids including forced heirship part. so many provisons can apply on the same part of the estate like here in this case. the first two kids get $1.375 mn each. and the 3rd kid gets $357,500. so effectively, this leaves $142,500 to be disposed of as per remaining will provision (like if he wants to establish a trust or something).

Thanks L3. Just reread the question and found out I was actually confused by the two separate 1/3 numbers. The first one, 33%, is really a mandate of that country for forced heirship, the second one is the real division among the children. All makes sense to me now, thanks for pointing out my stupidity! I really need to read the question more carefully. (And Schweser shouldn’t have made the numbers so close to each other.)

not a problem