Bob Keebler’s The Portability Calculator, published by the Ultimate Estate Planner, is an Excel based tool (ThePortabilityCalculator_v.1.2014.xlsm) for computation of the federal estate tax portability election. It includes an Owner’s Manual; A PowerPoint description of issues involved in the election; The Perils of Portability white paper discussing the effect of portability on planning, relationship with state taxes and Medicaid; and Keebler’s On-Demand Program.
Background as to the portability election may be found in Keebler, Understanding Portability (Ultimate Estate Planner 2/1/2014). Keebler, The Mathematics of Portability (AICPA Personal Financial Planning Section 2013) is a slide show covering portability basics and the math of portability with state income tax references, step-up issues and QTIPs. For a discussion of elections related to 2014 and later deaths, see Executors of Decedents Who Die in 2014 or Later are Still Subject to Stricter Time Limits (McGuire Woods 1/28/2014)
What’s It All About?
With regard to the portability of the deceased spouse's estate tax exemption amount, the spouse may:
- Transfer all the decedent’s assets to the surviving spouse and not elect portability.
- Elect portability and transfer some or all of the decedent’s assets to the surviving spouse.
- Fund a bypass trust in lieu of or in addition to electing portability.
The three steps in the analysis performed by the calculator will assist you in making this basic portability decision. It models potential tax exposure as a function of inflation, rate of investment return and life expectancy, along with some lesser considerations.
The Owners Manual includes an analysis of the three basic options regarding the portability election. It discusses three groups of clients: (1) couples with a total net worth below a single applicable exclusion; (2) those with a net worth above their combined applicable exclusion; and (3) those whose net worth is between the other two groups.
The Owners Manual also discusses how the Steps of The Portability Calculator allow you to address the estate and income tax results of the portability election and bypass trust funding as to each of these groups and other situations.
In addition to the mathematics of the portability decision, an analysis of whether to fund a bypass trust requires consideration of the qualitative aspects of such funding. For that purpose, The Portability Calculator includes a checklist with a rating system and graph to help illustrate these considerations for the client.
The author stresses that the calculator is not a final arbiter of the portability decision because of future valuation and legislative variables but is designed to help the practitioner identify and explain planning opportunities.
How it Works
The Portability Calculator begins with an Input page that walks you through entering the available client information and estimates, such as the combined gross assets of the couple and the estimated future rate of inflation. Navigation is by the usual Excel tabs at the bottom of the screen.
You then fill in the basic exclusion amount (BEA) (the minimum estate tax exclusion amount allowed for a single decedent), as reduced by previous gifts for both husband and wife; the assumed future inflation rate of the BEA under federal law and the assumed year of death of the first spouse to die.
You then enter the amount the clients are willing to use to fund the bypass trust and the effective income tax rate if assets are sold at the surviving spouse’s death (the assumed capital gains tax rate).
The final section of the Input page includes qualitative questions addressing some of the factors that lead to a decision to consider a trust and you are asked to rate each factor from 1 to 10. Calculation Steps then follow.
STEP 1: Projected Size Of The Estate And The Need For Estate Tax Planning
This section builds a table based in the Input information. The columns in the table reflect for 40 future years the Additional Surviving Years, Surviving Spouse’s Exemption, Combined Exemption and Value of Appreciated Assets (with the estimated inflation rate entered at Input and two other suggested inflation rates).
Based on this table, The Portability Calculator constructs a chart that reflects the estimated total worth of the couple over the surviving spouse’s life expectancy. This chart shows the zones over which portability planning and estate tax planning should be addressed.
STEP 2: Combined Effect of Estate & Income Tax Funding of A Bypass Trust
This section builds a table with information from the Input screen that has columns for Additional Surviving Years, Portability and Bypass Trust, with sub columns for 100% Liquiation at Second Death and No Liquidation, respectively.
The Portability column displays the amount transferred solely resulting from the portability election. The second and third columns display the amount transferred at Amount Willing to Use to Fund the Bypass Trust.
The second and third columns show the funds in the bypass trust that will be subject to income tax. To simplify this difficult calculation, these columns illustrate the extremes that can occur if the bypass is fully liquidated at the second death, with all assets taxed or if nothing is liquidated so that no trust assets are subject to income tax. Either of these scenarios is unlikely, but the calculations reflect that the wealth transferred through the bypass trust is within the limits of the assumptions used.
The calculator uses this data to create a bar graph of the bypass trust.
Step 2 includes subtabs 2A, 2B and 2C, which present spreadsheets displaying options for the calculation of Total Wealth Transfer from 100% Martial Deduction with Portability, Fund Bypass Trust– 00% Liquidation at Second Death and Fund a Bypass Trust–Never Liquidates.
STEP 3: Make Some of The Qualitative Considerations
This Step quantifies the 10 qualitative questions from the Input page. These questions asked for a numerical evaluation of the client level of concern regarding:
- Asset protection for the surviving spouse.
- Asset protection for the children.
- Assuring children will receive the first spouse to die’s assets as planned.
- Assuring grandchildren will receive assets as planned.
- Assuring other beneficiaries receive assets as planned.
- Are the heirs wealthy enough to be subject to the estate tax?
- Is the client’s estate exposed to state estate or inheritance taxes?
- Protecting assets from a spendthrift child or grandchild.
- Protection for a special needs beneficiary likely to receive government benefits.
- Possibility that surviving spouse may be subject to undue influence of others.
Based on the numerically expressed level of concern for these issues, Step 3 creates a dial graph that suggests either: Consider a Trust, Strongly Consider a Trust or Trust Recommended.
The Memo page then summarizes the functionality of the program and discusses the consequences of the calculations reflected by Steps 1 through 3 as based on the inflation rate you entered.
What About Help and Support?
Technical support, including questions about how to use this software, is furnished by Keebler & Associates, LLP Monday through Friday between 8:30am Central Time and 5pm Central Time at 920-593-1700. An Instructions Manual (in PDF format) is furnished with The Portability Calculator, which includes an analysis of the application of portability and instructions for the use of the calculator.
Where Do You Get This Facility?
The Portability Calculator is available from:
The Ultimate Estate Planner, Inc.
212 Yacht Club Way, Suite A-7
Redondo Beach, California 90277
Email: [email protected]
The Portability Calculator Standard Package (delivered by download) is $495 and the Premium Package (CDRom) is priced at $695.
The standard program includes a downloadable zip file containing The Portability Calculator (Microsoft Excel file), Owner’s Manual, Marketing Tools, White Paper & On-Demand Program. The premium program includes a CD-ROM with The Portability Calculator (Microsoft Excel file), Owner’s Manual, Marketing Tools, White Paper & On-Demand Program that is shipped out to the customer.
The Portability Calculator helps you quantify the decisions involved in making the portability election (and explaining it to the client) as opposed to just using your best hunch.
Trusts & Estates magazine is pleased to present the monthly Technology Review by Donald H. Kelley—a respected connoisseur of the software and Internet resources wealth management advisors use to further their practices.
Kelley is a lawyer living in Highlands Ranch, Colo., and is of counsel to the law firm of Kelley, Scritsmier & Byrne, P.C. of North Platte, Neb. He is the co-author of the Intuitive Estate Planner Software, (Thomson – West 2004). He has served on the governing boards of the American Bar Association Real Property Probate and Trust Section and the American College of Tax Counsel. He is a past regent and past chair of the Committee on Technology in the Practice of the American College of Trust and Estate Counsel.
Trusts & Estates has asked Kelley to provide his unvarnished opinions on the tech resources available in the practice today. His columns are edited for readability only. Send feedback and suggestions for articles directly to him at [email protected].