Tax efficiency

A financial process is said to be tax efficient if it is taxed at a lower rate than an alternative financial process that achieves the same end.

Passing one's assets onto one's heirs using a Grantor Retained Annuity Trust, for example, is potentially more tax efficient than simply letting the heirs inherit the assets.

Another example: An exchange-traded fund (ETF) that follows the S&P 500 Index generates fewer "taxable events" than a mutual fund that follows the same index.

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