CFA Level III Private Wealth Cheat Sheet: Funding and Transfers
Review household funding, after-tax cash, concentrated positions, fiduciary powers and transfer decisions for Private Wealth cases.
Establish the resources before choosing an investment
| Boundary | Working rule | Frequent error |
|---|---|---|
| Economic wealth | Include relevant earning power and pension rights once, alongside financial assets and liabilities. | Adding a pension lump sum without removing the entitlement it replaces. |
| Available cash | Map each payment date to cash controlled by the person responsible. | Treating a residence, nontransferable fund or another beneficiary’s trust as spendable. |
| Essential goals | Fund the specified spending floor before discretionary gifts or legacy goals. | Using an uncertain expected return as though it guaranteed the floor. |
| Reserves | Keep a required emergency balance separate from planned spending. | Counting the same cash toward a payment and the closing reserve. |
For financial assets \(F\), employment human capital \(H\), separately valued pension rights \(P\) and relevant liabilities \(L\), economic net worth is:
\[ W=F+H+P-L \]Use consistent valuation dates, units and tax treatment. Pension payments and their capital value are alternative representations, not two independent resources.
Funding and tax formulas
| Task | Inputs and interpretation |
|---|---|
| Level real spending gap | Discount annual after-tax spending less dependable matching income at the stated real funding yield. |
| After-tax sale proceeds | Tax the gain, not every dollar received, when the case supplies a proportional basis. |
| Purchasing power | Convert nominal after-tax growth into real growth before comparing with real spending. |
| Surplus loss | Divide the actual currency loss by initial surplus, rather than by total assets. |
For year-end gap \(C\), real yield \(r\) and \(n\) payments:
\[ PV=C\frac{1-(1+r)^{-n}}{r} \]This is an ordinary annuity. An immediate first payment, changing spending or a required terminal legacy needs a different cash-flow calculation. At zero yield, the level-payment value is \(nC\).
For gross proceeds \(S\), cost basis equal to fraction \(b\) of proceeds and gain-tax rate \(t\), with no other costs or reliefs:
\[ N=S[1-t(1-b)] \]If a sale must raise required net cash \(N\), divide by the bracketed factor. For example, a 40% basis and 25% tax on gains leaves 85% of proceeds; raising 680,000 net requires 800,000 gross. These are illustrative assumptions, not a jurisdiction’s tax rules.
For nominal after-tax return \(R\) and inflation \(\pi\):
\[ r_{real}=\frac{1+R}{1+\pi}-1 \]Subtracting inflation is an approximation. Keep periodic rates and compounding aligned.
Concentration and ownership
| Decision | Include | Check before recommending |
|---|---|---|
| Business diversification | Remaining equity and company-dependent seller debt. | Taxes and costs reduce the post-sale denominator; a note may remain illiquid. |
| Currency allocation | Underlying economic exposures. | Custody country and fund quotation currency do not establish economic currency. |
| Asset location | Expected after-tax outcomes within each account’s actual rules. | Contribution, withdrawal and ownership restrictions may override a simple tax-rate ranking. |
| Risk budget | Capacity after essential obligations and reserves. | A loss can reduce surplus proportionally more than it reduces investments. |
Keep economic rights, voting rights and operating management separate. A minority economic interest can retain votes under stated share terms; a majority stake does not itself prove control of every board or trustee decision.
Transfers, protection and philanthropy
| Arrangement or issue | Decisive distinction |
|---|---|
| Revocable versus completed gift | Check revocation, beneficial access and powers over enjoyment under the supplied law. Probate convenience does not automatically remove tax or creditor exposure. |
| Trustee versus beneficiary | Read the deed’s distribution standards, mandatory rights, consent requirements and investment powers. Equal income need not require equal discretionary principal. |
| Gift now versus bequest | Combine transfer tax, future growth, carried-over basis or basis adjustment, donor resources and implementation costs. |
| Insurance | Match the insured event and benefit timing to the loss. Life, disability, medical and liability protection address different exposures. |
| Charitable fund | Separate donor advisory privileges from binding control; charitable assets cease to be personal retirement resources. |
| Cross-border plan | Determine actual residence, asset situs, recognized documents, credits and payment dates. Obtain relevant legal and tax advice. |
Trust, entity, pension, charity and creditor outcomes vary by jurisdiction. In practice questions, apply the explicit hypothetical rules rather than importing your home-country assumptions. In actual planning, specialist confirmation precedes implementation.
Give an implementable recommendation
Identify the goal, amount, date, legal owner, authorized decision-maker and required approval. Prefer a targeted correction that satisfies the binding constraint while preserving useful parts of the plan. A family council can communicate priorities without acquiring a trustee’s legal powers.
Use the official curriculum for fuller treatment, and the free cases to test these distinctions in context. Use this reference for both item-set review and the separate written-response practice.
Turn the calculation into a written decision
State the client recommendation and connect it to the household objective, liquidity deadline and decision authority. Separate a tax-efficient ownership structure from the legal and family conditions needed to implement it. Use the Essay bank to practise this unaided before comparing the suggested response.