strategy. This should be done with reference to the investor's long-term disposal plans and related transfer tax considerations. Let us consider two situations to illustrate this point. SITUATION 1: GOAL IS MAXIMIZING CHILDREN'S WEALTH Mr. and Mrs. Jones have $25 million in financial assets. They are in their mid-60s. For planning purposes, they are using a 20-year combined life expectancy. Their goal is to maximize what can be passed to their four children. Their expenses include $250,000 annual living expenses that should grow with inflation and $80,000 per year based on Mr. and Mrs. Jones each giving $10,000 per year to each child. Mr. and Mrs. Jones have: II Direct ownership of $15 million in cash and securities. ! A 401(k) plan with $2 million from which they will withdraw $100,000 per year. II A grantor trust, now owned equally by the four children, with $ 8 million. SITUATION 2: GOAL IS MAXIMIZING LONG-TERM GIFTS TO CHARITY Mr. Smith has $100 million in financial assets plus another $55 million of charitable assets under his control. He is 70 years old and single. For planning purposes he is using a 15-year life expectancy. He has started a personal foundation and also created a charitable remainder trust. He has $2 million in annual living expenses that are expected to grow with inflation. He has: II Direct ownership of $75 million in cash and securities. II A 401 (k) plan with $5 million from which he will withdraw $500,000 per year. II A charitable remainder trust with assets of $50 million. The trust will pay Mr. Smith $2.8 million per year for 10 years. The present value of this annuity is $20 million. Thus, we consider $20 million of the $50 million to be part of Mr. Smith's personal wealth and the remaining $30 million to be part of the charitable assets under his control. II The Smith foundation has $25 million in assets. The residual of the CRT will go to Mr. Smith's foundation in 10 years. At his death, all his personal assets will go to the foundation. The remainder of this chapter is devoted to exploring how each can benefit from asset location strategies. We will demonstrate this by developing an efficient frontier chart that assumes optimal asset allocation and location. We will begin with a brief review of the tax characteristics of the four entities in our examples.