U.S. patent application number 14/195684 was filed with the patent office on 2014-10-23 for automatic mapping and allocation of special interests in trusts for portfolio analysis.
This patent application is currently assigned to Advisor Software, Inc.. The applicant listed for this patent is Advisor Software, Inc.. Invention is credited to Andrew T. Rudd, Nicolo Torre.
Application Number | 20140317017 14/195684 |
Document ID | / |
Family ID | 46330117 |
Filed Date | 2014-10-23 |
United States Patent
Application |
20140317017 |
Kind Code |
A1 |
Torre; Nicolo ; et
al. |
October 23, 2014 |
AUTOMATIC MAPPING AND ALLOCATION OF SPECIAL INTERESTS IN TRUSTS FOR
PORTFOLIO ANALYSIS
Abstract
The present invention relates to analysis of trusts that have
multiple beneficiaries whose interests mature in different time
periods or under different conditions. In particular, we disclose
automatic mapping of interests in one or more trusts, optionally
subject to user confirmation, to long and short positions in
financial or derivative interests that have expected payouts and
costs that can be offset against underlying trust assets. The
underlying assets and long and short positions in the mapped
instruments can be attributed to various beneficiaries and
subjected to various risk and investment analyses.
Inventors: |
Torre; Nicolo; (Oakland,
CA) ; Rudd; Andrew T.; (Orinda, CA) |
|
Applicant: |
Name |
City |
State |
Country |
Type |
Advisor Software, Inc. |
Walnut Creek |
CA |
US |
|
|
Assignee: |
Advisor Software, Inc.
Walnut Creek
CA
|
Family ID: |
46330117 |
Appl. No.: |
14/195684 |
Filed: |
March 3, 2014 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
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13471325 |
May 14, 2012 |
8666862 |
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14195684 |
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12955827 |
Nov 29, 2010 |
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13471325 |
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12028684 |
Feb 8, 2008 |
7844523 |
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12955827 |
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11627814 |
Jan 26, 2007 |
7689494 |
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12028684 |
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60889241 |
Feb 9, 2007 |
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60979765 |
Oct 12, 2007 |
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60785117 |
Mar 23, 2006 |
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Current U.S.
Class: |
705/36R |
Current CPC
Class: |
G06Q 40/06 20130101;
G06Q 40/04 20130101; G06Q 40/00 20130101 |
Class at
Publication: |
705/36.R |
International
Class: |
G06Q 40/06 20120101
G06Q040/06 |
Claims
1. A method of transforming and analyzing divided beneficiary
interests in at least one trust to at least first and second
beneficiaries, wherein the trust is described in data stored in
non-transitory memory and the data comprises at least an
identification and ownership of at least one trust asset and claims
on the trust asset, the method comprising: using a first processor,
accessing trust assets identification and ownership data in a
non-transitory memory and constructing multiple complementary
beneficiary portfolios that are adapted to portfolio analysis,
including automatically mapping a hypothetical long position in an
annuity for a first beneficiary portfolio and a complementary
hypothetical short position in the annuity for a second beneficiary
portfolio, whereby interests in the hypothetical long and
complementary short positions have an expected payout and cost
equal to the first and second beneficiaries' interests in the trust
asset; and using a second processor, performing portfolio analysis
on combinations of actual and hypothetical assets in at least one
of the complementary beneficiary portfolios of the first and second
beneficiaries, including accessing expected returns and risks of
the actual and hypothetical assets, and producing a perceptible
output summarizing results of the portfolio analysis.
Description
RELATED APPLICATION
[0001] This application is a continuation of U.S. patent
application Ser. No. 13/471,325, filed 14 May 2012, which issued 4
Mar. 2014 as U.S. Pat. No. 8,666,862, which is a continuation of
U.S. patent application Ser. No. 12/955,827, filed 29 Nov. 2010,
which is a continuation of U.S. patent application Ser. No.
12/028,684, which issued 30 Nov. 2010 as U.S. Pat. No. 7,844,523,
which is related to and claims the benefit of Provisional
Application No. 60/889,241, filed 9 Feb. 2007. The '241 provisional
application and the original '684 non-provisional application are
incorporated by reference. U.S. patent application Ser. No.
12/028,684 is also related to and claims priority as a
continuation-in-part of U.S. patent application Ser. No.
11/627,814, which issued 30 Mar. 2010 as U.S. Pat. No. 7,689,494,
which claims the benefit of Provisional Application No. 60/785,117,
which priority applications are incorporated by reference. U.S.
patent application Ser. No. 12/028,684 is related to and further
claims the benefit of Provisional Application No. 60/979,765, filed
12 Oct. 2007, which is incorporated by reference.
[0002] The priority applications illustrate analyses that can be
performed on and reported from the automatic mapping and allocation
of beneficiary interests as disclosed in this application.
BACKGROUND OF THE INVENTION
[0003] The present invention relates to analysis of trusts that
have multiple beneficiaries whose interests mature in different
time periods or under different conditions. In particular, we
disclose automatic mapping of interests in one or more trusts,
optionally subject to user confirmation, to long and short
positions in financial or derivative interests that have expected
payouts and costs that can be offset against underlying trust
assets. The underlying assets and long and short positions in the
mapped instruments can be attributed to various beneficiaries and
subjected to various risk and investment analyses.
[0004] The problems of managing an institutional portfolio or an
individual retirement account have produced a substantial body of
literature regarding analytical techniques. Several Nobel prizes in
economics have been awarded for advances related to portfolio
theory. However, the analysis is not applicable when legal entities
such as trusts are interposed between assets and beneficiaries.
These entities typically are employed to split risks and benefits
of asset ownership among beneficiaries according to goals set by
the original contributor of assets to the trusts. Many times, the
entities allocate interests to achieve efficient tax and transfer
benefits. By tax benefits, we mean favorable tax rates when income
is realized. By transfer benefits, we mean favorable gift or estate
tax rates when assets are transferred.
[0005] The economic situation of beneficiaries is transformed by
the legal structure of trust and other entities. The economic
situation of any particular beneficiary cannot be derived directly
from the underlying assets, due to the entities.
[0006] An opportunity arises to develop a system and method for
reducing the complex situation of portfolios held by trusts and
other entities for the benefit of multiple beneficiaries to one
which can be evaluated for individual beneficiaries using portfolio
analysis techniques typically applied to institutional or
individual portfolios.
SUMMARY OF THE INVENTION
[0007] The present invention relates to analysis of trusts that
have multiple beneficiaries whose interests mature in different
time periods or under different conditions. In particular, we
disclose automatic mapping of interests in one or more trusts,
optionally subject to user confirmation, to long and short
positions in financial or derivative interests that have expected
payouts and costs that can be offset against underlying trust
assets. The underlying assets and long and short positions in the
mapped instruments can be attributed to various beneficiaries and
subjected to various risk and investment analyses. Particular
aspects of the present invention are described in the claims,
specification and drawings.
BRIEF DESCRIPTION OF THE DRAWINGS
[0008] FIG. 1 conceptually depicts the relationships among assets,
entities, beneficiaries and goals.
[0009] FIG. 2 summarizes a complex of family trusts with varying
beneficiary interests. A variety of immediate, deferred and
contingent interests are illustrated, with additional possible
interests listed.
[0010] FIG. 3-9 depict mapping of beneficiary interests to balanced
combinations of long and short assets that can be evaluated for
individual beneficiaries using portfolio analysis techniques.
[0011] FIG. 3 schematically depicts payouts to a particular
beneficiary for life.
[0012] FIG. 4 schematically depicts a remainder interest in
accumulated income for a particular beneficiary.
[0013] FIG. 5 schematically depicts a terminal payout to a
particular beneficiary.
[0014] FIG. 6 schematically depicts a remainder interest of a
particular beneficiary in an asset.
[0015] FIG. 7 schematically depicts a percentage interest of a
particular beneficiary in an asset.
[0016] FIG. 8 schematically depicts a dollar amount interest of a
particular beneficiary in an asset.
[0017] FIG. 9 schematically depicts a complex cost recovery
interests of a particular beneficiary.
[0018] FIG. 10 depicts a system that interacts with a user to
collect data and perform trust analyses.
[0019] FIG. 11 is a high-level flowchart of data entry, analysis
and output.
[0020] Additional figures appear in the applications that have been
incorporated by reference.
DETAILED DESCRIPTION
[0021] The following detailed description is made with reference to
the figures. Preferred embodiments are described to illustrate the
present invention, not to limit its scope, which is defined by the
claims. Those of ordinary skill in the art will recognize a variety
of equivalent variations on the description that follows.
[0022] In the following paragraphs, we disclose how the complex
situation of beneficiary interests in one or more trusts can be
reduced to a portfolio analysis problem that can be addressed by a
variety of techniques. For beneficiary interests in a portfolio, we
construct combinations of long and short interests in financial or
derivative instruments having the same payout and/or cost as the
beneficiary interests. We then indicate a variety of analyses for
entities and individuals that can be combined with our allocation
of long and short assets to facilitate economic analysis of
beneficiary interests.
[0023] In the abstract, analysis begins by recognizing layers of
assets, entities, beneficiaries and goals, as illustrated in FIG.
1. Assets are held by entities. Assets are subject to portfolio
analysis. Beneficiaries have interests in assets of the entities,
by their relationship to the structure of the entities. The
beneficiary interests are not directly subject to portfolio
analysis. Goals for activities to be financed by the beneficiary
interests and policies for investing set and steer the course.
[0024] In the materials incorporated by reference, we have
described balancing of resources and claims using a balance sheet
of sorts. Resources are assets of various types held by one or more
legal entities. Returns on the assets accrue to the beneficiaries
through the entities. Claims are goals that the beneficiary
interests should enable. Goals can be expressed as essential,
additional and aspirational. A balance sheet shows the extent to
which the present value of resources satisfies the present cost of
the goals, by category. A surplus can be expressed as a margin of
safety, using risk-at-value measures. A shortfall in meeting goals
may lead to a readjustment of goals or a different investment
strategy.
[0025] FIG. 2 depicts interests in a family of legal entities, as
an example of what a trusted advisor needs to consider. The
structure is complex and the advisor's role is challenging. The
advisor takes into account efficiencies and risk management. The
advisor is expected to generate required cash flows from the assets
and help the family keep resources and claims in balance.
Efficiencies include investing, tax and transfer efficiencies. Part
of investment efficiency is risk management. Tax and transfer
efficiencies implicate the legal structure of entities. Cash flow
analysis, described in the incorporated materials, shows how
resources will be spent to meet goals over time. Focus on the
overall balance of resources and claims can be more productive than
looking at the details of cash flow, especially when there is a
surplus of resources to meet at least essential goals. Keeping
resources and claims in balance can usefully begin with a family
mission statement.
[0026] A family mission statement for a family with assets
structured as depicted in FIG. 2 is detailed in the incorporated
materials. (1) The assets should be managed in a prudent and
efficient manner to preserve their real economic value and to
enhance it where compatible with overall goals. (2) Primary goals
include providing and income to Alex and Sylvia M. 210, 220;
transferring a basic inheritance to the children of Alex 240, 250,
260, 270; and supporting a parent 280. (3) Secondary goals include
providing additional income; funding a program of charitable
giving, funding to weddings and education; funding a pension for a
caretaker and companion 290; establishing a financial reserve for
future goals; and enhancing the children's inheritance. (4)
Additional goals may be purchasing a yacht and increasing
philanthropy. (5) Residual goal is that additional assets should be
invested in a moderately aggressive fashion for long-term wealth
creation. In the incorporated materials, dollar amounts and dates
are given for a hypothetical Alexander Montgomery family with these
goals.
[0027] The particular legal entities in FIG. 2 are among a large
number of entity types that include households, trusts,
corporations and foundations. Within these broad categories, there
are number of subcategories. For instance, trusts may be revocable,
irrevocable, grantor, or defective grantor trusts, among others.
Abstracting and generalizing, we note the following features of a
legal entity: (1) It has a type and a subtype. (2) It may hold
property, such as real estate or investment accounts. (3) Depending
on its type, it defines a set of roles and persons associated with
the roles. A person may be either natural or corporate person. For
instance, a trust defines a trustee role. The trustee role may be
filled by either a natural person or trust company. (4) It may have
a terminating event, after which the entity ceases to exist. The
entity may never terminate, it may terminate at a fixed date, after
the first or last death of people in a list, or at some combination
of a fixed date and a death event. (5) an entity has a list of
beneficial interests. A beneficial interest, which we sometimes
refer to as a beneficiary interest, is a combination of beneficiary
and interest. A beneficiary can be either a natural person or an
entity.
[0028] Looking at FIG. 2, we see individuals with various
relationships. Alex 210 is married to Sylvia 220 and previously was
married to Helen 230. Alex and Sylvia have one child Cedrick 270.
Alex and Helen had three children, Didi, Nicki and Robert 240, 250,
260. Jane 280 is Alex's mother. Violet 290 is mother's caretaker or
companion. The various entities 201-208 are owned or controlled by
or subject to Alex's beneficiary interest. We reference beneficial
interests in the entities by combining the row and column numbers
in the chart. Alex has 100 percent control 211 of the AM trust 201.
Remainder interests in the trust are divided equally among four
children of two marriages 241, 251, 261, 271. Alex has a deferred
interest in the principal in income from his independent retirement
account 212. Control of the M foundation is shared by Alex with
Sylvia 213, 223. Trusts were established for three children of the
first marriage, each child an undivided interest in the income and
principal of a trust 244, 255, 266. Alex as a contingent remainder
interest in the HM trust 218, in which Helen has an income interest
238 and three children have remainder interests 248, 258, 268. From
FIG. 2, it is apparent that evaluating the economic position of any
particular beneficiary requires attributing appropriate assets to
the beneficiary's portfolio. The appropriate assets may combine
assets actually held by one of the entities with hypothetical
assets.
[0029] The interests depicted in FIG. 2 are among a wide range
economic benefits that can be generated by an entity. A trust, for
instance, may provide ownership, life income, principal and
remainder interests.
[0030] An ownership interest is characterized by percentage from
zero to 100 percent. The percentage of ownership corresponds to the
control fraction that gives a percentage control of the entity.
Ownership gives full participation in economic benefits of the
entity.
[0031] An income interest terminates either on a given day, on the
beneficiary's death, or on the earlier of the two events. Income
interest can be stated in a variety of ways. A beneficiary may
share in the entity's annual income. A beneficiary may receive the
stated dollar amount, potentially with cost-of-living adjustments
which may be annual, quarterly or on some other frequency. Cost
reimbursement is a variety of income interest, in which the
beneficiary receives income equal to a multiple of the
beneficiaries cost experience in a year. Typical costs are for
education, health and general living expenses. A normal annual
expense can be calculated for any of these cost categories.
[0032] If an entity terminates before the income interest
terminates, the remaining income interest may be satisfied in a
variety of ways. The beneficiary may be paid this stated value,
potentially subject to inflation escalation. The beneficiary may be
paid a multiple of the average benefit data over a stated number of
years prior to termination. Or, the beneficiary may get nothing. Of
course, other variations are possible.
[0033] A remainder income interest entitles the holder to share in
income not otherwise disposed of. A remainder income interest
typically terminates when the entity terminates, which may coincide
with termination of a primary income interest.
[0034] A capital interest provides a percentage share or a dollar
claim against an asset. A dollar amount interest in an asset,
potentially may be subject to inflation escalation. An interest may
mature at a stated time or termination of the entity. The benefit
may be accelerated or forfeited if the entity terminates before a
stated time. The benefit may or may not be forfeited upon death of
the beneficiary, prior to distribution the benefit.
[0035] A remainder capital interest provides a share of the
residual value assets held by the entity upon termination of the
entity.
[0036] A contingent interest transforms into or triggers one of the
other interests if the contingency is met. The contingency that
gives rise to another type of interest may, for instance, be that
everyone on the list of persons dies before a stated day or the
termination of the entity. Or, at least some number of persons on
the list survives to a stated date or termination of the entity.
Many other contingencies can be imagined.
[0037] Consider, for example, a testamentary trust that old assets
are in the life of a surviving spouse, with the provision that
income will be paid currently to the surviving spouse and a capital
will be available to pay health expenses. When a spouse dies, the
interest is divided equally between two children. Here, the entity
is a trust the terminates on the death of the spouse. The spouse as
income interest equal to 100 percent of income with no terminal
benefit. The spouse also has an income interest measured by health
costs. The children have remainder capital interest of 50 percent
each.
[0038] In another example, a grantor retained annuity trust pays a
grantor an annuity of $100,000 per year for five years and pays a
remainder to a child. If the grantor dies within five years, the
remainder goes to the grantor's estate. The grantor has an income
interest, the child has a remainder capital interest, and the
estate has a contingent capital interest.
[0039] The following abstractions or generalizations are useful. An
interest has a beneficiary and an entity. An interest terminates
with the termination of the entity. An interest may terminate when
a beneficiary dies or it may pass to a new beneficiary. An interest
may be present or contingent interest. A contingent interest
becomes a present interest once the condition of the contingency is
met. An interest may be a claim on current income, accumulated
income, or capital of an entity. There may be some ordering as to
which class is called upon first to satisfy the interest. For
instance, health expenses may be paid first from income and then
from capital. An interest is limited to the available class of
resource of the entity at which it has a claim. An income interest
is not allowed to invade capital. An interest is payable at a time
or at some frequency within a window of time. The payment time or
window boundaries can be defined either by a date or an event.
Typical advance used to define payment windows are termination of
entities, termination of beneficiaries or death of natural persons.
The amount of an interest can be stated in a variety of ways. The
amount can be a specific sum, a sum adjusted by a price index,
realized costs of an activity or a share of a class of resource. An
interest can be assigned a priority within its resource pool, such
that it is paid only after claims of high-ranking interests. With
these characteristics in mind, we propose a novel way to
automatically characterize the economic benefits of beneficiary
interests so that they can be analyzed as beneficiary
portfolio.
[0040] A beneficiary is someone who holds at least an interest in
an entity and may hold multiple interests in multiple entities. We
disclose a method and system for automatically creating a
beneficiary portfolio that includes real and hypothetical assets,
which represents the beneficiary's interests. Creating a
beneficiary portfolio is this way permits analysis using standard
portfolio analysis techniques. Portfolio analysis techniques model
the economic consequences of interests held by beneficiaries. This
depends on the hypothetical asset qualifying as an asset that the
analysis technique understands. That is, the hypothetical asset is
in the analysis universe. In general, we assume that if a
non-derivative asset is in the analytic universe, techniques are
available for understanding income-only and principal-only
derivatives of the asset. The analytic universe includes insurance
and annuities, particularly whole life insurance, term life
insurance and (both life and single payment).
[0041] To create a beneficiary portfolio for a beneficiary who has
interests in several entities, we consider each entity in turn. We
look at each of the interests assigned from an entity and map
hypothetical assets to interest categories as appropriate.
[0042] For a beneficiary with a percentage ownership interest in an
entity, we add a percentage of each asset held by the entity to the
beneficiary portfolio.
[0043] For a beneficiary with an income interest, several
treatments are possible, depending on how the income interest is
defined. If the beneficiary is entitled to a share of income from
the entity, we add a percentage of an income-only derivative in
each asset held by the entity to the beneficiary portfolio. If the
beneficiary is entitled to cost recovery, we equate the expected
cost an annuity that has initial "normal" payout. We multiply the
normal payout times the applicable multiplier, potentially inflated
by cost index. For instance, recovery of health costs would be
inflated by a health care cost index, while living expenses would
be subject to a cost-of-living index. If there is a terminal payout
upon entity termination, we represent that by a hypothetical term
life policy, with the benefit amount equal to the termination
benefit and the payout criterion identical with the entity
termination criterion.
[0044] In FIG. 3, we illustrate creation of beneficiary portfolios
that include a payout for life to a particular beneficiary. The
trust 301 holds at least one asset 311. For portfolio analysis, we
allocate this asset to the other beneficiaries 313. The beneficial
interest of the particular beneficiary 302 is represented by a long
position in a life term annuity 322. The long position is offset by
a short position 323 allocated to the other beneficiaries 302.
Comparing the trust portfolio 301 to the portfolios of the
particular beneficiary 302 and the other beneficiaries 303, we see
that the hypothetical long and short interests 322, 323 are
balanced, so the combined beneficiary portfolios 302, 303 have the
same expected payout and cost as the original trust portfolio
303.
[0045] In FIG. 5, we depict a terminal payout to a particular
beneficiary. The asset held by the trust 511 is allocated to the
other beneficiaries 513. The beneficiary portfolio for the
particular beneficiary 502 is allocated a long position in a term
life policy 522 with the benefit amount equal to the termination
benefit. The long position is offset by a short position in a term
life policy 523 assigned to the other beneficiaries 503.
[0046] In FIG. 9, we depict an extended cost recovery for health
costs. The particular beneficiary 902 is covered for both immediate
health costs and long-term residential care. The asset 911 in the
trust 901 is assigned to the other beneficiaries 913. The
particular beneficiary is assigned long positions in a medical
insurance policy 922 and a long-term healthcare policy 932. The
long insurance positions are offset by short positions 923, 933 and
in beneficiary portfolios of the other beneficiaries 903.
[0047] For a beneficiary with the remainder income interest, we
divide the trust asset into derivatives for income-only and
principal-only. This is illustrated in FIG. 4. Supposing that the
remainder interest is subject to periodic payments to other
beneficiaries, we add a long position in an annuity 423 to the
other beneficiaries 403. This is balanced by a short position in
the annuity 422 added to the beneficiary portfolio of the
particular beneficiary 402. The particular beneficiary also is
assigned the income-only derivative 412. If the other beneficiaries
have different interests, the other beneficiaries interests 403 are
appropriately represented as long positions 433 and balanced by
short positions 422 in the beneficiary portfolio for the particular
beneficiary. This is generally illustrated in FIG. 6, which depicts
how to represent a particular beneficiary's capital remainder
interest so that it can be handled by portfolio analysis.
[0048] For a beneficiary with a capital interest, the handling
depends on whether the capital interest is a share of an asset or a
dollar amount. FIG. 7 illustrates the case in which the particular
beneficiary is entitled to a percentage of the asset. Then, the
asset in the trust portfolio 701 is represented as an income-only
derivative 711 plus a principal-only derivative 721. The
income-only derivative is assigned 713 to the other beneficiaries
703. The respective percentages of the principal derivative are
assigned to the particular beneficiary 722 and the other
beneficiaries 723. FIG. 8 illustrates the case in which the
particular beneficiary is entitled to a specific dollar amount from
the asset. The trust asset 811 is assigned to the other
beneficiaries 813. A long position in a single period annuity 822
is assigned to the beneficiary portfolio of the particular
beneficiary 802. The long position is balanced by a short position
in the same annuity 823 assigned to the beneficiary portfolios of
the other beneficiaries 803.
[0049] In these examples we disclose representing beneficial
interests in individual beneficiary portfolios as combinations of
assets held by a trust with long and short positions of
hypothetical assets. The long and short positions are offsetting,
so the combined holdings of the beneficiary portfolios precisely
equal the holdings of the trust portfolio. The expected payout of a
select of hypothetical position (sometimes combined with an asset)
equals the beneficial interest in the portfolio. This approach can
be implemented in a system or described as a method.
[0050] FIG. 10 depicts a system that interacts with the user,
receiving input, constructing beneficiary portfolios and producing
perceptible output. A server or other device with logic and
resources 1020 interacts with a user 1010 who typically has a
trusted advisor. Of course, a beneficiary also could interact with
the server. The server collects from the user 1010 a variety of
information about entity assets and beneficial interests. The
information listed includes assets 1031, beneficiaries 1033 and
beneficiary interest 1035. A beneficiary interest is described by a
time period. 1041, a relationship to income and capital 1043, and
contingencies 1045. This description may be stored in a data tuple.
The description of a beneficiary or beneficial interest further may
include a terminating event, or a single payment interest can be
implied by a null terminating event. It also may include priority
information, if the interest is subject to prior satisfaction of
other priorities.
[0051] The system 1020 converts the import 1031-1045 into
beneficiary portfolios 1051-1052. The portfolios include assets
1061, 1062 at hypothetical long and short positions 1071, 1072,
1081, 1082. These beneficiary portfolios are subject to portfolio
analysis, from which perceptible output 1090 is generated.
[0052] There are several useful analyses of beneficiary portfolios
that can be used to produce perceptible output 1090. Of course,
these analyses of beneficiary portfolios include both the actual
hypothetical assets. It is useful to value and project cash flow
from a portfolio. Portfolio holdings may be characterized by the
fractions of value allocated to types of investments, investment
styles, sectors of the economy and sectors of global capital
market. A beneficiary portfolio may be measured for exposure to
investment risk, including analyzing the amount of value-at-risk. A
particular portfolio may be characterized in terms of investment
risk and return, for instance positioned along an efficient
frontier. Simulation can be applied to a beneficiary portfolio,
either under the assumption of a static mix of underlying assets or
a dynamic investment strategy. The simulation can be constrained to
generate or avoid specific scenarios where it can be run many times
and the outcomes categorized by scenario. Scenarios may, for
instance, include the order of death of various beneficiaries. This
is of particular interest when a family of entities evolves over
time at the hands of multiple advisors. Simulation that produces a
variety of death orders will sometimes reveal unexpected
dispositions of assets. Productivity of a beneficiary portfolio can
be measured in terms of investment risk exposures, investment risk,
projected return and efficiency relative to goals set by the
beneficiary. The likelihood of satisfying essential, additional and
aspirational goals can be calculated by simulation.
[0053] Individual beneficiary portfolios and a family of
beneficiary portfolios can be optimized using the methods and
systems disclosed in Provisional Application No. 60/979,765, filed
12 Oct. 2007, which was incorporated by reference above. Further
detail regarding interesting analyses of beneficiary portfolios
that include real and hypothetical assets appears in the materials
incorporated by reference.
[0054] FIG. 11 is a general flowchart of a method that maps
hypothetical assets to beneficiary portfolios and produces
perceptible output. The method includes eliciting trust and goal
related data 1110. This includes both resource and claim
information and beneficial interest information. The method maps
beneficial interest to financial and derivative instruments 1120.
Any of a variety of portfolio analyses can be applied 1130 to
individual beneficiary portfolios, the family of beneficiary
portfolios or the trust portfolio. Beneficiary portfolios may
optionally include separate assets of the beneficiary that are not
controlled or held by the family of entities. Analyses for various
portfolios can be summarized and graphically depicted in comparison
to each other. The results are output in a perceptible form 1140.
They may be printed or displayed on a monitor.
Some Particular Embodiments
[0055] The present invention may be practiced as a method or device
adapted to practice the method. The invention may be an article of
manufacture such as media impressed with logic to carry out
computer-assisted mapping of beneficiary interests in a trust to
actual and hypothetical assets in beneficiary portfolios and
performing portfolio analysis on the resulting beneficiary
portfolios.
[0056] One embodiment is a computing device that collects trust
related data and automatically constructs beneficiary portfolios
including real and hypothetical assets. This device includes logic
and resources coupled to a network. It includes a listing module, a
beneficiary module and a portfolio analysis module, which run on
the logic and resources. The eliciting module interacts via network
with the user and collects trust related data. The trust related
data collected includes at least an identification and ownership of
trust assets, and identification of beneficiaries, and a
description of beneficiary interests in the trust assets. The
description of the beneficiary interest includes a period of the
beneficiary interest, relationship of the beneficiary interest
income and capital and applicable contingencies, if any. The
beneficiary portfolio module is coupled to the trust related data
collected by the eliciting module. It constructs beneficiary models
by automatically mapping the beneficiary interests to combinations
of long and short positions in financial or derivative interests
that have expected payouts and costs equal to the beneficiary
interest in the trust assets. It automatically allocates the long
and short positions to beneficiary portfolios of a particular
beneficiary having a particular beneficiary interest and to
beneficiary portfolios of other beneficiaries. The portfolio
analysis module is coupled to the beneficiary portfolios. It
performs portfolio analysis on actual and hypothetical assets in
the beneficiary portfolios and produces a perceptible output
summarizing results of the portfolio analysis.
[0057] One aspect of this embodiment further includes internal
characterization data tuples that represent the beneficiary
interest. These data tuples are stored in computer readable media.
The data elements of the tuples include at least a trigger for the
beneficiary to receive a payout from the beneficiary interest, a
terminating event for the beneficiary to stop receiving the payout,
a payout schedule of payout string the time from the triggering
event to the terminating event, and inflation flag for whether
scheduled amounts (as opposed proportions) among the payouts are
inflation-adjusted, a claim schedule of claims of the beneficiary
interest against current income, accumulated income and/or
principal in the trust assets, and a priority schedule of priority
of the beneficiary interest claims in relation to other claims
against the trust assets. According to this aspect, the trust
related data is stored in the internal characterization data
tuples.
[0058] Another aspect of this embodiment further includes the
eliciting module adapted to collect individual assets information
from a least one particular beneficiary regarding their individual,
non-trust assets. It further includes a portfolio analysis module
adapted to perform the portfolio analysis on the actual and
hypothetical assets in the beneficiary portfolio combined with the
individual assets of the particular beneficiary.
[0059] A further aspect of this embodiment includes the portfolio
analysis module adapted to run portfolio analyses that take into
account statistical uncertainty of performance of the beneficiary
portfolio.
[0060] In the disclosure above, we describe a variety of examples
of automatically mapping beneficiary interest to long and short
positions in hypothetical and real assets. All of the examples
described above are aspects of the device embodiment. In
particular, the beneficiary interest may include at least a
remainder interest in a cumulated income in favor of the particular
beneficiary, subject to a sequence of payouts for life to a second
beneficiary from income produced by the trust asset. According to
this aspect, the device further automatically maps the income of
the trust assets to an income-only derivative and the principal of
the trust asset to the principal-only derivative. It maps the
payout to a long position in annuity for the second beneficiary and
a short position in the annuity for the particular beneficiary. It
allocates these long and short positions in the financial or
derivative instruments to the beneficiary portfolios. It allocates
the income-only derivative to the particular beneficiary.
[0061] This device embodiment and it's aspects may be combined with
a variety of analyses including the descriptive and insightful
analyses described in U.S. patent application Ser. No. 11/627,814
and the solution methods described in provisional application No.
60/979,765. The modules identified can be adapted to perform any of
the methods described in this application, including methods
described in the material incorporated by reference.
[0062] One method embodiment is a computer implemented method of
attributing interest in at least one trust to a plurality of
beneficiaries who received differing benefits at differing times.
This method includes interactively the eliciting a description of
trust assets and interest. The description elicited includes an
identification and ownership of trust assets, and identification of
beneficiaries, and a description of beneficiary interests in the
trust assets. The description of beneficiary interest includes a
period of the beneficiary interests, a relationship of the
beneficiary interest income and capital and applicable
contingencies. The method proceeds with creating beneficiary
portfolios by automatically mapping the beneficiary interest to
long and short positions in financial or derivative instruments
having expected payouts and costs equal to the beneficiary
interests in the assets. It further includes analyzing at least one
beneficiary portfolio for a particular beneficiary and perceptibly
reporting results of the analysis.
[0063] One aspect of this method, for a particular beneficiary,
further includes combining non-trust assets to the beneficiary with
the beneficiary portfolio for combined analysis.
[0064] Another aspect of this method is analyzing the beneficiary
portfolio by taking into account statistical uncertainty in
performance of the beneficiary portfolio.
[0065] This method may be employed to analyze a plurality of
beneficiary portfolios in scenarios that involve differing orders
of death among the beneficiaries.
[0066] As with the device embodiment, the method embodiment may
include creating internal characterization data tuples for the
beneficiary interests. These data tuples may include at least a
trigger for the beneficiary to receive a payout from the
beneficiary interest, a terminating event for the beneficiary to
stop receiving the payout, a payout schedule of payout string the
time between the triggering and terminating events, an inflation
flag for whether the scheduled amounts are inflation-adjusted, a
claim schedule claims of the beneficiary interest against current
income accumulated income, and/or principal in the trust assets,
and a priority schedule of priority of the beneficiary interest
claims in relation to other claims against the trust assets.
Applying the data tuple aspect, the automatic mapping action uses
the internal characterization data tuples to select the long and
short positions in the financial or derivative instruments.
[0067] Optionally, the automatic mapping maybe presented to a user
for confirmation or editing.
[0068] Again, we describe above a variety of examples of
automatically mapping beneficiary interests to long and short
positions in hypothetical and real assets. In one case, the
beneficiary interests include at least a sequence of payouts that
extend until a particular beneficiary's death. These payouts have
priority over other interests of other beneficiaries. The method
further includes automatically mapping the payouts to a long
position in an annuity for the particular beneficiary and an
offsetting short position in the annuity for the other
beneficiaries. These long and short positions are readily subject
to portfolio analysis, whereas portfolio analysis tools do not
understand a beneficial interest in a trust that affords payouts
until a beneficiary's death.
[0069] In another case, the beneficial interests included at least
a sequence of payouts for health cost recovery that extend until a
particular beneficiary's death. These payouts have priority over
interests of other beneficiaries. The method further includes
automatically mapping the payouts to long position in a health
insurance policy for the particular beneficiary and an offsetting
short position in a health insurance policy for the other
beneficiaries. Of course, these mapped positions are allocated to
their respective beneficiary portfolios as hypothetical assets.
[0070] In a further case, the beneficiary interests include at
least a remainder interest in accumulated income from a trust asset
in favor of the particular beneficiary. This remainder interest is
subject to a sequence of payouts for life to a second beneficiary
from income produced by the trust asset. The method further
includes automatically mapping the income of the trust asset to an
income-only derivative and the principal of the trust asset to a
principal-only derivative. It includes mapping the payout to a long
position in an annuity for the second beneficiary and an offsetting
short position in the annuity for the particular beneficiary and
allocating the long and short positions to the beneficiary
portfolios. It further includes allocating the income-only
derivative to the particular beneficiary.
[0071] In yet a different case, the beneficiary interests include
at least a payout on behalf of a particular beneficiary triggered
by the particular beneficiary death. This may be a legacy payout.
The payout has priority over a remainder interest of other
beneficiaries. The method further includes automatically mapping
the payout to a long position in a term life policy for the
particular beneficiary and an offsetting short position in the term
life policy for the other beneficiaries.
[0072] Another case involves beneficiary interest that included at
least a remainder interest in a trust asset in favor of a
particular beneficiary. This method further includes allocating the
trust asset to the particular beneficiary and mapping all other
beneficiary interests that have a claim on the trust asset as long
positions representing the beneficiary interests in respective
beneficiary portfolios and is offsetting short positions in the
particular beneficiary portfolio.
[0073] A pair of capital interest cases involve distribution of
proportionate shares and specific dollar amounts from a trust
asset. In this proportionate share case, a particular beneficiary
is entitled to a capital interest in a proportionate share of a
trust asset, subject to income interests of other beneficiaries.
The method further includes mapping income from the trust asset to
an income-only derivative and principal of the trust asset to a
principal-only derivative. It further includes allocating the
particular beneficiary's proportionate share of the principal-only
derivative to the particular beneficiary's portfolio. The case in
which the particular beneficiary has a dollar amount interest in
the capital of a particular trust asset, the method further
includes mapping the dollar amount of the capital interest in the
trust asset to a long position in a single period annuity for the
particular beneficiary's portfolio and an offsetting short position
in the single period annuity for the other beneficiaries.
[0074] While the present invention is disclosed by reference to the
preferred embodiments and examples detailed above, it is understood
that these examples are intended in an illustrative rather than in
a limiting sense. Computer-assisted processing is implicated in the
described embodiments. Accordingly, the present invention may be
embodied in: methods for automatically mapping and allocating real
and hypothetical assets to match beneficial interests in trust
assets while facilitating portfolio analysis of the resulting
beneficiary portfolios, systems including logic and resources to
carry out mappings and allocations to create beneficiary
portfolios; systems that take advantage of computer-assisted
mapping and allocation of real and hypothetical assets into
beneficiary portfolios; media impressed with logic to carry out
mapping and allocation of real and hypothetical assets into
beneficiary portfolios; methods of sending and receiving data
streams intended to be persisted in memory, at least temporarily,
that are impressed with logic to carry out mapping and allocation
of real and hypothetical assets into beneficiary portfolios, or
computer-accessible services that carry out computer-assisted
mapping and allocation of real and hypothetical assets into
beneficiary portfolios. It is contemplated that modifications and
combinations will readily occur to those skilled in the art, which
modifications and combinations will be within the spirit of the
invention and the scope of the following claims.
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