Alpa Singh, 56 was recently widowed. She was married to Robert Singh, MD for 29 years and
Question:
Alpa Singh, 56 was recently widowed. She was married to Robert Singh, MD for 29 years and has 2 daughters, 26 and 23 years old. Upon the death of her husband, Mrs. Singh received $ 3 million for his life insurance policy. The Singhs have also set aside $ 2.35 million towards their retirement. Mrs. Singh has no income of her own and was dependent on her husband. They lived comfortably, and Mrs. Singh estimates that she would need $90,000 per year to continue to enjoy the same lifestyle, even though her daughters are not dependent on her, she feels that she would gift them each $25,000 per year.
She would also like to be able to pay $315,000 for the younger daughter’s wedding next year. Her house is completely paid for, and she would like to leave it to er daughters upon her death as part of their inheritance. She would also like to leave a sizable inheritance for her grandchildren.
Mrs. Singh would like to keep her investments in the U.S. and not use any leverage in hr portfolio. She considers herself to be moderately risk-averse but recognizes that she has a long-term time horizon after taking gifts to her grandchildren into account. Her numerical risk aversion is 6. Her tax bracket is 25%, The cost of managing her portfolio is estimated to be equal to 0.5% per annum and inflation is at 0.9%.
David Wells has been the financial advisor for the Singhs. To plan for changes in her portfolio and to invest the proceeds from the life insurance policy, he has prepared the following long-term capital market expectations:
The risk free rate is assumed to be 3%. Using the long-term capital market expectations, the mean variance optimization yields foour corner portfolio is as follows:
(a) What is her total portfolio value?
(b) What is her total living & gift expenses (after tax)?
(c) What is her total living & gift expenses (before tax)?
(d) What is her spending rate?
(e) What is her required rate of return?
Income Tax Fundamentals 2014
ISBN: 9781285424545
32nd Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven Gill