FastPlan

[Kathleen Reynolds]

#3198

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The purpose of this analysis is to show settlement costs and totals to beneficiaries through three different dispositive strategies:

1. First to Die leaves everything to Second To Die, with no additional planning
2. First to Die leaves nothing to Second To Die, with no additional planning
3. Both spouses include some level of basic planning.

All of strategies assume that joint assets pass to the surviving spouse, with the exception being community property states. In those states, the joint property is divided between the two estates.

The last strategy, Planning, allows for several basic techniques.

Entering Data

General Tab

• Analysis Date: Enter the date of the analysis. This date should be on or before the date of the first death. It is important to note: growth is calculated based on this date. Growth is calculated annually, however, growth in the first year will be based off a prorata formula based off this analysis date. For example, if the analysis date is 12/1/2020, then the formula will return the number of days left in the year, and that figured divided by 365. A similar calculation is done for dates of death.
• Marital Status: This calculation can handle both married and single cases.
• Inflation Rate: The inflation rate is used to determine exclusion values that are in the future. Although this figure will always impact future Federal Exclusion values, some states do not apply and inflation adjustment. The model will apply the inflation adjustment to the states that are applicable.
• Global Growth: The model allows for a quick entry to be used for all asset values. If you select “Yes”, an input will appear next to the “Yes/No” selector that allows you to enter the global growth to be used. If you select “No”, then each asset type will have a unique growth rate that will appear next to the start balance that will be used. The following asset types will use this feature: IRA, Roth IRA, 401(k), Out of State Property, Other Assets, Nontaxable Assets, Liabilities, Non-marital Trust, Marital Trust, Life Insurance Trust, and Annual Exclusion Gifts.
• Sunset in 2026?: The Federal Exclusion is set to sunset in 2026. If you wish to have the exclusion continue (with inflation) based off the tax changes from 2017, select “No”.
• Use Portability: In 2011, the unused portion of a deceased spouse’s exclusion was was allowed to be used at time of second death. Its possible that legislation in the future will not allow such a portability, so this option allows you to do a what if scenario.
• Name: Enter the first name of the client.
• Date of Death: Enter the date of death. The date of death will be a key element in determining the growth. In the year of death, growth will be calculated based on the number of days since Jan 1 of that year. If you are running projections and want to simplify the growth calculations, its suggested that you use end of year for death, such as 12/31/YYYY.
• Taxable Gifts 1977+: Enter the total amount of prior gifts made since 1977.
• Unified Credit Option: This allows you to select whether the maximum allowed credit was used for the prior gifts. If you choose “Max Allowed UC”, the credit calculated will be based off the analysis year’s tax tables. If you need to enter specific year values, use the “Prior Gifts” model in this application to determine the credit used for multiple gifts, and then select “Manual Entry” for this input.
• Unified Credit Used: If you selected to use “Max Allowed UC” in the option input, the value will be shown. If you selected to use “Manual Entry”, enter the credit used on prior gifts.
• Domicile at Death: Select the state, which will perform inheritance or decoupled calculations.
• Recipient Class: This input will appear if a state selected had an inheritance tax imposed. Select the “State Inputs” help topic to see such states, and to see a list of the beneficiary designations.

Retirement Accounts

• IRA: Enter the balance of the IRA as of the analysis date. If you selected to not use the Global Growth Rate from the General inputs tab, a growth rate will appear for the IRA.
• Roth IRA: Enter the balance of the Roth IRA as of the analysis date. If you selected to not use the Global Growth Rate from the General inputs tab, a growth rate will appear for the IRA.
• 401(k): Enter the balance of the 401(k) as of the analysis date. If you selected to not use the Global Growth Rate from the General inputs tab, a growth rate will appear for the IRA.
• *NOTE* : this model currently doesn’t consider required minimum distributions or annual contributions to the retirement accounts. You can enter a negative growth rate to simulate RMDs.

Insurance

• Ownership: Enter the amount of insurance for which the person owns the policy. This will be included in the estate.
• Date Purchased: This is the date the policy for the “Ownership” was in effect. Part of this model allows for the creation of an ILIT. For the ILIT, the owned policy has to be in place at least 3 years prior to death. In the cases where the 3 year rule is satisfied and the user has selected to use the ILIT, the insurance will not be included in that estate tax calculation. If the 3 year rule fails, regardless if the user’s selection of the ILIT, the insurance will be included in the estate.
• Insured On: Enter the amount of insurance that is “on” the person. This will be treated as nontaxable, and placed in the ILIT. Amounts entered here are for presentation purposes only, and have no impact on the estate tax calculation.

Other Assets and Liabilities

• Out of State Property: Enter the balance of the Out of State Property as of the analysis date. If you selected to not use the Global Growth Rate from the General inputs tab, a growth rate will appear. Some state calculations treat out of state property differently.
• Other Assets: Enter the balance of the Other Taxable Assets as of the analysis date. If you selected to not use the Global Growth Rate from the General inputs tab, a growth rate will appear.
• Nontaxable Assets: Enter the balance of the Nontaxable Assets as of the analysis date. If you selected to not use the Global Growth Rate from the General inputs tab, a growth rate will appear. These nontaxable assets will not impact the estate tax, but can be used to fund expenses.
• Liabilities: Enter the balance of the Liabilities as of the analysis date. If you selected to not use the Global Growth Rate from the General inputs tab, a growth rate will appear. If a liability is entered for the first estate, and there are not enough funds to satisfy the liability, the second estate will assume the responsibility (with growth, if applicable).
• Probate: Enter the probate percentage to be used. Probate will be applied to Other and Out of State assets.

Planning

• This tab is used for the 3rd strategy that is illustrated only.
• Create Non-marital Trust: There are several options that appear.
  1. Optimize Fed Exclusion – this will create a Non-marital trust equal to the remaining federal exclusion. It considers prior taxable gifts, and the year of death to determine the value.
  2. Optimize State Exclusion – this will create a Non-marital trust equal to the remaining state exclusion. This is valid option for states that have decoupled from the Federal calculation. For states that have not decoupled, this selection will result in a “No” Non-marital Trust calculation.
  3. Assign Beneficiaries- this option will allow you to assign each asset from the first to die to a beneficiary type: Spouse, Heir(NMT), or Charity. If assets are left to Heirs (NMT), they will be dumped into the Non-marital Trust. The amount in the Non-marital Trust will go through an estate calculation to determine if any Federal or State estate tax is calculated. If insurance is left to the spouse, the benefit is dumped into the Other Assets for the second estate.
  4. No- this option will not set up a Non-marital Trust, and is assumed that assets pass directly to spouse.
• Create Marital Trust: This will create a Marital Trust with the assets that are designated to pass to the second to die. This allows First To Die to control the ultimate disposition of the trust principal upon the death of Second To Die. At time of Second To Die’s death, the interest in the trust would terminate and the remaining trust principal must pass to the remainder interest beneficiaries designated by First To Die. At time of death, this has little to no impact on the estate tax calculation.
• Create Life Insurance Trust: This will create an ILIT with insurance policies that pass the 3 year rule.
• Charitable Bequest: This bequest is available at second death (or for single analysis).
• Maximum Annual Exclusion Gifts: If these are used, select “Yes”. Enter the number of donees for the gifts. For each donee, its assumed that the maximum annual gift is used (2021, this value is $15,000). The gifts start in the analysis year, and continue through the year of death. Each gift will liquidate available funds, and be placed in an investment account with a growth rate. For this model, its assumed that the gifts occur at beginning of year.

Results

Summary- The Summary Tab displays a snapshot of each strategy. The values shown represent assets with growth, as well as total settlement costs. If the analysis is for a married client, the total settlement costs will represent costs from both estates, and the amounts going to everything else will consider growth accumulation. The only exception is for assets going to Charity, once an asset is designated for charity (and removed), the model does not affix a projected growth accumulation. All of the other asset types will either use the Global Growth rate or the unique growth rate assigned to it.

Graph- The Graph Tab will display a chart with 2 factors: a) Total Settlement Costs b) Total to Beneficiaries. Each strategy will be shown in a side by side comparison.

Estate Tax Details- The Estate Tax Details will illustrate how estate tax details for each estate.

Flowcharts- Click on Flowcharts to see how each estate is calculated. Click on the PDF to see the flowcharts.

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