Real Estate - Mortgage Financing -Donor Advisor - Charitable trust -Sales and Leaseback Liabilities + Reserve taxes paid in a source country, The tax paid on foreign source is greater of
Trang 11. 3 Techniques
for Managing
Concentrated
Positions
1 Sell it
2 Monetize it - Borrow Against it
3 Hedge it
to Manage a
Concentrated
Position
1 Establish written objectives and constraints for clients - includes non financial issues (like retaining control)
2 Identify Strategies/Techniques that can best meet objectives
3 Consider Tax Consequences
4 Consider any other advantages/disadvantages
5 Document Decision Make
control over the asset other strategies need to be discussed
Positions
-Cognitive
Biases
Conservatism - Maintain Existing Beliefs Illusion of control
Anchoring & Adjustment Availability - in making decisions
Positions
-Emotional
Biases
Overconfidence Familiarity Illusion of Knowledge - Overestimating favorable returns
Nạve extrapolation of past results Endowment - Thinks it's worth more than it is
Loyalty
Positions - Inst
and Cap Mkt
Contraints
Tax Law - Subject to foreign tax?
Asset Type from a legal perspective (is it an
S corp? Partnership) Margin Lending Rules - Limit the amount that can be lent
Insider restrictions, regs, reporting Employee Minimum Holding Period Capital Market Limitations (IPOs,No Derivatives, Etc.)
Real Estate
- Mortgage Financing -Donor Advisor - Charitable trust -Sales and Leaseback
Liabilities + Reserve
taxes paid in a source country, The tax paid
on foreign source is greater of domestic or source country rates
If domestic is higher than foreign extra $ goes to Domestic
Hedges
Short Sales of Highly Correlated Companies Short Index that is correlated
Buy Puts Exchange Funds
Method
(Partial Resolution) Individual pays full tax in source country and deducts taxes paid from residence taxes Dom taxes are paid on all of
it, but with a deduction for taxes paid to Source Country
Freeze
A strategy to transfer future appreciation and tax liability to future generations Typically done by Partnership or Corporate Structure
Method
Residence Country charges no tax on income generated abroad (If source Jurisdiction) Foreign income is taxed only by source country Each income is taxed separately
15.Financial Capital
Mkt Value of an individuals portfolio
DM Process for
Concentrated Positions
Bucket Approach
1 Personal Risk Bucket - Protect form Poverty
of drastic decline in lifestyle - LOW RISK Assets
2 Market Risk Bucket - Maintain Standard of Living - Stocks/Bonds
3 Remaining $ would be allocated to aspirational risk goals - Concentrated positions are OK Here
vs Risk
Young w/ Secure Income - HC Low Risk so
FC should be High Risk Young w/ Insecure or Correlated Income
-HC High so FC Low Risk Young Insecure /Non Correlated Income
-HC Lower so FC High
***FC UP = Life Insurance Down**
Short them to create a riskless position Creates "Riskless" Position - Borrow Against that
2 Equity Fwd Contract - Locks in future sales price
3 Fwd Conversion w/ options - Collar w/ Stock Price = Strike Price
4 Total Return Swap - Swap return of the stock for Libor
5 protective Puts
6 Prepaid variable fwds - Collar and Loan in 1 transaction
Capital
Discounted Present Value of Future Earnings
CFA Level 3 Book 1 Estate Planning
Trang 220.Monetization 1 Hedge as much of the risk as possible w/o triggering taxes
2 Borrow using hedged position as collateral Better the hedge, the higher the LTV
2 Financial Buyer - Private Equity
3 Recapitalization - Used for Established but less mature companies - Owner can reduce his holdings and maintain some ownership
4 Sales to Key Employees - Usually at a discount - Owner financed - Could damage relationship
5 Divestiture - Sell non-essential businesses and buy out owner's shaes
6 Gifts
7 Personal Line of Credit secured by company
8 IPO
9 ESOP
Taxable Gifts
Paper Card
Residence) Def
Source - Countries levy tax on all income w/in it borders Residence - Country taxes the income of it's residents