| Calculation help needed. worth of 35000 spent in 1995? |
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captainglyde
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| Calculation help needed. worth of 35000 spent in 1995? |
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What would 35000 in 1995 be worth today if it had been earning a 5.5% rate of return?
Please explain the math to me for figuring this out. What I'm particularly confused about is whether or not there would be any adjustments for inflation required?
My Grandmother is re-writing her will. She has 350K in assets and three daughters to divide it amongst. One of her daughters, though, took 35K against her inheritance in 1995 from a fund that earned an average of 5.5%.
So we need to find this ammount and then add it to the 350K to see what Grandma would have had today.
Then to fairly divide among the daughters you divide that larger amount by three to get the theoretical inheritance. Then from the borrowing daughter's third, you subtract the 2005 amount of her original 35000.
ie. say that amount is 60,000
grandma's assets would equal 410,000 if the daughter had never borrowed.
410,000 divided by 3 = 136,666
daughter 1 inheritance = 136,666
d 2 i = 136,666
d 3 i = 136,666-60,000 = 76,666
Also, does anyone know how this could be stated in a living will? The problem is that these amounts are fluid so you can't just say, "76,666 to borrowing daughter and the rest to the other two." If she lives for another ten years and her investments double, the borrowing daughter would be left with a very unfair poriton.
Is there a formula that could be found and can you place such a formula in the will?
Thank you.
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Sat Dec 17, 2005 4:49 am |
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efflandt
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Location: Elgin, IL USA
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If any income tax is applied to your grandmother's rate of return or withdrawls, you may need to factor that in somewhere.
Note that $35k is 10% of $350k, so simplest method is to take "current" balance divided by 0.9 (or 90%) to find what the potential balance would have been, then deduct "current" balance divided by 9 from d3's 1/3rd share of that.
I other words, figuring 5.5% compounded annually with no tax, FV(5.5%;10;0;$350,000) = $597,850.56 (to check math below)
($350k - $35k) would grow to $538,065.50 (90% of above)
$538,065.50/0.9 = $597,850.56
or 199,283.52 split 3 ways, but deduct ($538,065.50/9 = $59,785.06) from d3
If actual current balance is $410k:
410,000/0.9/3 = 151,851.85 for d1 & d2
151,851.85 - (410,000/9) = 106,296.29 for d3
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Sun Dec 18, 2005 1:36 am |
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Rolo
Yo' Daddy
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Inflation is irrelevant in this situation.
"Expect me when you see me."
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Sun Dec 18, 2005 6:15 am |
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efflandt
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I read it as $350k in 1995 minus $35k (10%) that d3 took at that time. So for current balance at any present or future date (with no other additions/distributions), formulas for shares would be:
d1 & d2 each get: balance * 10 / 27
d2 gets: balance * 7 / 27
This agrees with my previous math. I just had to think 30 some years back to algebra to simplify the equations.
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Sun Dec 18, 2005 6:01 pm |
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