Efficient frontiers in estate planning |
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| Institution: | 1. Department of Pediatrics, Rutgers Robert Wood Johnson Medical School, New Brunswick, NJ;2. Boggs Center on Developmental Disabilities, Rutgers Robert Wood Johnson Medical School, New Brunswick, NJ;3. Department of Family Medicine and Community Health, Rutgers Robert Wood Johnson Medical School, New Brunswick, NJ;4. Children''s Health Institute of New Jersey, Rutgers Robert Wood Johnson Medical School, New Brunswick, NJ;5. Children''s Specialized Hospital, New Brunswick, NJ;6. Department of Pediatrics, The Children''s Hospital of Philadelphia, Pa;7. Princeton University, NJ;8. Rutgers Biomedical Health Sciences, The School of Public Health, Piscataway, NJ;9. Institute of Health Policy, Management and Evaluation, Dalla Lana School of Public Health, University of Toronto, Ontario, Canada;1. University of A Coruña, Economic Analysis and Business Administration Department, Facultad Economía y Empresa, Campus Elviña, s/n, La Coruña 15071, Spain;2. University of Quebec in Outaouais (Canada), Marketing Department, 101, Rue Saint-Jean Bosco, Gatineau, Ottawa, Canada;1. University of Mississippi Medical Center, United States;2. Social Science Research Center, Mississippi State University, United States;3. Department of Sociology, Mississippi State University, United States |
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| Abstract: | This article explores the nature of the efficient frontier in probabilistic estate planning for 16 different estate plans by considering as random variables ages at death, rates of return on assets, and borrowing rates on debts. The simulation considers two couples, one middle aged, the other elderly. Two 16 × 16 matrices, one for each couple, are used to record and compare the results of every simulation. That comparative data, in conjunction with the coefficient of variation based efficient frontier, contain useful information for couples who, consistent with their levels of risk, desire to maximize the net present value of assets passing to their heirs. The efficient frontier is shown to be a function of three factors: assumptions, ages of the estate owners, and the discount rates of the heirs. Because of the instability shown in the efficient frontier, estate planners and estate owners must carefully examine not only the estate plans which fall on the efficient frontier but also those estate plans which fall just off that frontier. |
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