Estate Strategy: Estate Distribution

• The Estate Strategypage is used to:
  • define the distribution of the estate as either a dollar or percentage value.
  • define bequests of specific assets on the client’s or co-client’s death.
  • define the details of any testamentary trusts applicable for a scenario.

• Bequests and testamentary trusts cannot be entered in Simple Will type scenarios.

• Use the Estate Distribution subtab to:
  • indicate whether the clients will be using a simple will or detailed estate scenario.
  • add testamentary trusts
  • define bequests

• Estate fees, expenses, taxes, and certain liabilities are paid off at death prior to testamentary transfers. If there are insufficient cash surpluses to pay for estate settlement, accounts are liquidated to settle the estate prior to distribution. In this case, a default liquidation order is used.
  • You can prevent specific accounts from being liquidated to settle the estate, by selecting Not Available For Estate Needs on the Asset Estate Details tab.
  • You can prevent cash surpluses from being used to settle the estate by creating a surplus savings strategy on the Surplus Cash Usage page, and then making the accounts to which the surplus cash is saved not available for estate needs.
  • The following items are included in the estate settlement pool (paid off at death):
    

    Federal estate taxes, state estate taxes, and generation-skipping transfer taxes (GSTT) on bequests, not otherwise payable by a QTIP or marital trust	Income in respect of a decedent (IRD) taxes
    Probate fees and administration fees	Final estate expenses
    Liabilities with a Payoff Options at Death selection of either Payoff at first death (from estate) or Payoff at owner’s death (from estate)	Accumulated deficit from previous years (includes lump-sum lifestyle expenses in the year of death and income taxes that would contribute to creating a current year deficit in the year of death)

    
    Note: When an estate deficit occurs at the first death, that deficit is eliminated from the plan entirely in the year of death. It is not passed on to the survivor, and it is not offset with any of the survivor’s cash flow.

• Assets are liquidated in the following order to the extent required to cover estate needs:
  1. Pre-death cash flow surplus of the decedent, including life insurance proceeds where the beneficiary of the policy is the decedent.
     • Exception! If the estate scenario contains a generic testamentary, QTIP, or marital trust with a funding option of Remainder, then cash flow surplus remaining after probate and administration fees, final expenses, and liabilities are paid (but before estate taxes are paid) is used after #2 below. In other words, estate expenses remaining at this point are covered first using funds designated for credit shelter trusts/generic testamentary trusts (maximum exclusion amount), and then by the remaining cash flow surplus.
  2. Assets funding new credit shelter trusts or generic testamentary trusts with the Maximum Exclusion funding option selected.
     • Exception! These trust assets are not used to cover the state death tax portion of estate needs in years when the state death tax is treated as a deduction.
  3. Life insurance proceeds where the beneficiary of the policy is the surviving client.
     This does not include the proceeds of policies where the insured is Other, and it does not include the proceeds of policies where the owner is the surviving client and the insured is the decedent (or Joint 1st to die).
  4. Non-qualified accounts owned by the decedent, not specifically bequeathed and not transferred to a testamentary trust.
     In basis carryover years, the existing regular deficit coverage order is used to liquidate the accounts. NaviPlan redeems the account prior to the basis step-up, using a formula to solve for the amount (accurate to within $10).
  5. Fifty percent of joint non-qualified and 50% of community property non-qualified accounts (where the owner is the decedent, titled portion only), not specifically bequeathed and not transferred to a testamentary trust.
  6. Non-qualified accounts and cash surpluses (remainder) funding testamentary trusts.
     Assets are liquidated from trusts in the following order. Within each trust type, assets are liquidated in a random order.
     1. Prorata across marital trusts, QDOTs, and QTIPs
     2. Testamentary trusts
     3. TCLTs
     4. Credit shelter trusts
  7. Non-qualified accounts specifically bequeathed to the surviving spouse (random selection) are used, and then non-qualified accounts specifically bequeathed to the beneficiary (random selection) are used.
  8. Non-qualified annuities.
  9. Qualified accounts owned by the decedent (including annuities), not specifically bequeathed and not transferred to a testamentary trust.
  10. Qualified accounts owned by the decedent (including annuities) that are transferred to a testamentary trust or specifically bequeathed are liquidated in the following order:
      1. Accounts manually transferred to marital trusts, QDOTs, and QTIPs
      2. Accounts manually transferred to CSTs
      3. Accounts manually transferred to TCLTs
      4. Accounts passing by beneficiary designation
  11. By default, real estate and lifestyle assets are not available for estate settlement. If you make them available on the Asset Estate Details tab, and if estate needs still exist after all the assets listed above have been liquidated, lifestyle and real estate assets are redeemed partially if the full amount is not needed. These assets are liquidated in the following order:
      1. Real estate assets owned by the decedent
      2. Fifty percent of joint real estate and fifty percent of community property real estate assets where the owner is the decedent (title portion only)
      3. Real estate assets designated for a testamentary trust (in the same order used for non-qualified accounts)
      4. Bequested real estate assets
      5. Lifestyle assets owned by the decedent, liquidated in the following order:
         1. Other personal assets
         2. Personal use property
         3. Second residence
         4. Residence
      6. Fifty percent of joint lifestyle assets and fifty percent of community property lifestyle assets where the owner is the decedent (title portion only)
      7. Lifestyle assets designated for a testamentary trusts (in the same order used for non-qualified accounts)
      8. Bequested lifestyle assets

• Select Convert to Detailed to enable estate distribution.
  OR
  Select Convert and Create Marital/CST to enable detailed estate distribution and automatically create a Credit Shelter Trust and a Marital Trust.
  Note: This procedure only applies to joint analyses (when there is both a client and co-client).

Note: For joint analyses (when there is both a client and a co-client), this section appears only if Convert to Detailed or Convert and Create <trusts> has been selected.

1. From the Testamentary Trusts container, select for Add Trust and choose a trust from the menu.
   

   
   From here, your steps will vary based on what type of trust you want to add.

   Select one of the following:
   Credit Shelter Trust	Qualified Terminable Interest Property
   State Qualified Terminable Interest Property	Marital Trust
   Generic Testamentary Trust	Testamentary Charitable Lead Trust

continued steps for Credit Shelter Trust...

2. Enter basic trust information into the New CST section.
   • Enter a name for the trust under Description.
   • Select a client at whose death funds will transfer to the new CST under At Death of. If one client is selected, but the other client dies first, the trust is not funded.
   • Enter the tax rate that is levied on any returns that are held within the trust (i.e., those returns that are not distributed to the member or heirs) prior to the reinvestment of that money in the trust under Trust Tax Rate.
3. Enter Funding details for the trust.
   • If Autofund is selected, NaviPlan automatically designates assets to fund the CST. The default funding order of assets is based on the NaviPlan deficit coverage methodology, in which non-qualified assets are ordered by their ratio of cost basis to market value, as of the end of the year, for the client and co-client.
   • Select either Maximum Exclusion or Value ($).
     • Maximum Exclusion: The value of the distribution is equal to the respective client’s remaining applicable exclusion amount at the time of death.
     • Value ($): Allows you to enter a specific amount that will be used to fund the trust. This option is only available if the Maximum Exclusion option is cleared.
4. Make a selection for the GSTT Exemption Allocation.
   • Funding Amount: Makes the exemption equal to the set funding amount.
   • Fixed Amount: Entering a value sets the exemption at a specific dollar value. This field is only available if the Funding Amount check box is cleared.
5. From the Remainder Beneficiaries container, select for Add Beneficiary and add all relevant beneficiaries for the trust.
6.  For each beneficiary, enter the percentage of the remainder income attributable to the selected beneficiary.
   OR
   Select Pro-Rata to split the remainder equally among all beneficiaries added to the trust.
7. If the trust has income beneficiaries and if any trust income is to go to the surviving client, enter this percentage under the Income Beneficiaries container. 
8. If applicable, go to the Return Rates subtab and enter the expected return rates for each field. By default, the investment income is reinvested into the trust.

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continued steps for Qualified Terminable Interest Property...

2. Enter basic trust information into the New QTIP section.
   • Enter a name for the trust under Description.
   • Select a client at whose death funds will transfer to the new QTIP under At Death of. If one client is selected, but the other client dies first, the trust is not funded.
   • Select Reverse QTIP to cause the transfer of assets to the trust to be considered from the donor spouse to the remainder beneficiaries for GSTT purposes. Any remaining GSTT exemption of the donor is applied against any GSTT that results from the trust. If this check box is not selected, GSTT implications on the death of the member selected will be considered.
   • Enter the tax rate that is levied on any returns that are held within the trust (i.e., those returns that are not distributed to the member or heirs) prior to the reinvestment of that money in the trust under Trust Tax Rate.
3. Enter Funding details for the trust.
   • Select Remainder, Autofund, Asset Transfer.
     • Remainder: The value transferred to the trust is equal to the respective client’s estate remainder.
       • Once estate fees, liabilities, and taxes have been settled, solely owned non-qualified assets and cash remaining in the estate form the remainder. Lifestyle assets, real estate assets, business assets, joint assets, and qualified assets do not form part of the remainder.
       • If other bequests and testamentary trusts are funded with the remainder, a priority ordering takes place where general bequests are funded first followed by testamentary trusts prorata.
     • Autofund: NaviPlan automatically designates assets to fund the trust. Funding will be done by default deficit coverage ordering.
     • Asset Transfer: Assets must be manually assigned on the Asset Transfers tab. Qualified assets (except for 529 plans) are available to be transferred to a new CST and/or QTIP.
       • For a qualified asset to fund a testamentary trust, the qualified asset must be selected on the Asset Transfers tab. Qualified plans are not redeemed to cash upon transfer, but retain their tax-deferred status for purposes of required minimum distributions and IRD calculations.
4. Make a selection for the GSTT Exemption Allocation.
   • Funding Amount: Makes the exemption equal to the set funding amount.
   • Fixed Amount: Entering a value sets the exemption at a specific dollar value. This field is only available if the Funding Amount check box is cleared.
5. From the Remainder Beneficiaries container, select for Add Beneficiary and add all relevant beneficiaries for the trust.
6.  For each beneficiary, enter the percentage of the remainder income attributable to the selected beneficiary.
   OR
   Select Pro-Rata to split the remainder equally among all beneficiaries added to the trust.
7. If the trust has income beneficiaries and if any trust income is to go to the surviving client, enter this percentage under the Income Beneficiaries container. 
8. If applicable, go to the Return Rates subtab and enter the expected return rates for each field. By default, the investment income is reinvested into the trust.

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continued steps for State Qualified Terminable Interest Property...

2. Enter basic trust information into the New State QTIP section.
   • Enter a name for the trust under Description.
   • Select a client at whose death funds will transfer to the new State QTIP under At Death of. If one client is selected, but the other client dies first, the trust is not funded.
   • Enter the tax rate that is levied on any returns that are held within the trust (i.e., those returns that are not distributed to the member or heirs) prior to the reinvestment of that money in the trust under Trust Tax Rate.
3. Enter Funding details for the trust.
   • If Autofund is selected, NaviPlan automatically designates assets to fund the CST. The default funding order of assets is based on the NaviPlan deficit coverage methodology, in which non-qualified assets are ordered by their ratio of cost basis to market value, as of the end of the year, for the client and co-client.
   • Select either Maximum Exclusion or Value ($).
     • Maximum Exclusion: The value of the distribution is equal to the respective client’s remaining applicable exclusion amount at the time of death.
     • Value ($): Allows you to enter a specific amount that will be used to fund the trust. This option is only available if the Maximum Exclusion option is cleared.
4. Make a selection for the GSTT Exemption Allocation.
   • Funding Amount: Makes the exemption equal to the set funding amount.
   • Fixed Amount: Entering a value sets the exemption at a specific dollar value. This field is only available if the Funding Amount check box is cleared.
5. From the Remainder Beneficiaries container, select for Add Beneficiary and add all relevant beneficiaries for the trust.
6.  For each beneficiary, enter the percentage of the remainder income attributable to the selected beneficiary.
   OR
   Select Pro-Rata to split the remainder equally among all beneficiaries added to the trust.
7. If the trust has income beneficiaries and if any trust income is to go to the surviving client, enter this percentage under the Income Beneficiaries container. 
8. If applicable, go to the Return Rates subtab and enter the expected return rates for each field. By default, the investment income is reinvested into the trust.

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continued steps for Marital Trust...

2. Enter basic trust information into the New Marital Trust section.
   • Enter a name for the trust under Description.
   • Enter the tax rate that is levied on any returns that are held within the trust (i.e., those returns that are not distributed to the member or heirs) prior to the reinvestment of that money in the trust under Trust Tax Rate.
   • Select a client at whose death funds will transfer to the new marital trust under At Death of. If one client is selected, but the other client dies first, the trust is not funded.
3. Enter Funding details for the trust.
   • Select Remainder, Autofund, Asset Transfer.
     • Remainder: The value transferred to the trust is equal to the respective client’s estate remainder.
       • Once estate fees, liabilities, and taxes have been settled, solely owned non-qualified assets and cash remaining in the estate form the remainder. Lifestyle assets, real estate assets, business assets, joint assets, and qualified assets do not form part of the remainder.
       • If other bequests and testamentary trusts are funded with the remainder, a priority ordering takes place where general bequests are funded first followed by testamentary trusts prorata.
     • Autofund: NaviPlan automatically designates assets to fund the trust. Funding will be done by default deficit coverage ordering.
     • Asset Transfer: Assets must be manually assigned on the Asset Transfers tab. Qualified assets (except for 529 plans) are available to be transferred to a new CST and/or QTIP.
       • For a qualified asset to fund a testamentary trust, the qualified asset must be selected on the Asset Transfers tab. Qualified plans are not redeemed to cash upon transfer, but retain their tax-deferred status for purposes of required minimum distributions and IRD calculations.
4. Make a selection for the GSTT Exemption Allocation.
   • Funding Amount: Makes the exemption equal to the set funding amount.
   • Fixed Amount: Entering a value sets the exemption at a specific dollar value. This field is only available if the Funding Amount check box is cleared.
5. From the Remainder Beneficiaries container, select for Add Beneficiary and add all relevant beneficiaries for the trust.
6. For each beneficiary, enter the percentage of the remainder income attributable to the selected beneficiary.
   OR
   Select Pro-Rata to split the remainder equally among all beneficiaries added to the trust.
7. If the trust has income beneficiaries and if any trust income is to go to the surviving client, enter this percentage under the Income Beneficiaries container.
8. If applicable, go to the Return Rates subtab and enter the expected return rates for each field. By default, the investment income is reinvested into the trust.

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continued steps for Generic Testamentary Trust...

2. Enter basic trust information into the New Generic Testamentary Trust section.
   • Enter a name for the trust under Description.
   • Select a client at whose death funds will transfer to the new Generic Testamentary Trust under At Death of. If one client is selected, but the other client dies first, the trust is not funded.
   • Enter the tax rate that is levied on any returns that are held within the trust (i.e., those returns that are not distributed to the member or heirs) prior to the reinvestment of that money in the trust under Trust Tax Rate.
3. Enter Funding details for the trust.
   • Select Remainder, Maximum Exclusion, or Fixed Amount.
     • Remainder: The value transferred to the trust is equal to the respective client’s estate remainder.
       • Once estate fees, liabilities, and taxes have been settled, solely owned non-qualified assets and cash remaining in the estate form the remainder. Lifestyle assets, real estate assets, business assets, joint assets, and qualified assets do not form part of the remainder.
       • If other bequests and testamentary trusts are funded with the remainder, a priority ordering takes place where general bequests are funded first followed by testamentary trusts prorata.
     • Maximum Exclusion: The value of the distribution is equal to the respective client’s remaining applicable exclusion amount at the time of death.
     • Fixed Amount: Entering a value sets the exemption at a specific dollar value. This field is only available if the Funding Amount check box is cleared.
4. Make a selection for the GSTT Exemption Allocation.
   • Funding Amount: Makes the exemption equal to the set funding amount.
   • Fixed Amount: Entering a value sets the exemption at a specific dollar value. This field is only available if the Funding Amount check box is cleared.
5. Enter Unitrust information.
   • Select the Unitrust option to indicate that a percentage of the trust’s market value is to be distributed as income.
   • If you selected the Unitrust option, the following fields are available:
     • Trust Payment %: The percentage of the trust’s market value to be distributed as income.
     • Frequency: How often the trust payments are made from the trust.
   • Enter a value specifying the annual payment amount in the Annual Payment Amount field.
6. From the Remainder Beneficiaries container, select for Add Beneficiary and add all relevant beneficiaries for the trust.
   • For each beneficiary, enter the percentage of the remainder income attributable to the selected beneficiary.
     OR
     Select Pro-Rata to split the remainder equally among all beneficiaries added to the trust.
   • If the trust has income beneficiaries and if any trust income is to go to the surviving client, enter this percentage under the Income Beneficiaries container.
7. From the Asset Transfer tab, enter information for trust asset transfers.
   • Select for Add Asset Transfer and choose an asset from the menu.
   • Enter the portion of the asset that is transferred to the trust in the $ or % of Market Value field.
     Note: The market value amount displayed on the Asset Transfers tab is not reduced based on the transfer percentage entered.
8. If applicable, go to the Return Rates subtab and enter the expected return rates for each field. By default, the investment income is reinvested into the trust.

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continued steps for Testamentary Charitable Lead Trust...

2. Enter basic trust information into the New TCLAT section.
   • Enter a name for the trust under Description.
   • Select a client at whose death funds will transfer to the new TCLT under At Death of. If one client is selected, but the other client dies first, the trust is not funded.
   • Enter the tax rate that is levied on any returns that are held within the trust (i.e., those returns that are not distributed to the member or heirs) prior to the reinvestment of that money in the trust under Trust Tax Rate.
   • Make a selection for Payment Distribution to indicate how the income from the trust is distributed (Unitrust or Annuity method).
   • Select Zero-Out TCLAT to automatically calculate the Trust Payment % such that the taxes on the trust are zeroed out. Alternatively, you can clear the Zero-Out TCLAT option and enter a value for Trust Payment % manually.
     Note: Zero-Out TCLAT is not accessible when Unitrust is selected from the Payment Distribution list.
   • Define the Payment Frequency, Payment Period, and Term in Years for the trust.
   • Enter the IRS-determined rate used to calculate the remainder interest (taxable gift) at the end of the Rolling GRAT term under the IRC 7520 Rate field.
3. Enter Funding details for the trust.
   • Select Remainder or Fixed Amount.
     • Remainder: The value transferred to the trust is equal to the respective client’s estate remainder.
       • Once estate fees, liabilities, and taxes have been settled, solely owned non-qualified assets and cash remaining in the estate form the remainder. Lifestyle assets, real estate assets, business assets, joint assets, and qualified assets do not form part of the remainder.
       • If other bequests and testamentary trusts are funded with the remainder, a priority ordering takes place where general bequests are funded first followed by testamentary trusts prorata.
     • Fixed Amount: Entering a value sets the exemption at a specific dollar value. This field is only available if the Funding Amount check box is cleared.
4. From the Remainder Beneficiaries container, select for Add Beneficiary and add all relevant beneficiaries for the trust.

5. For each beneficiary, enter the percentage of the remainder income attributable to the selected beneficiary.
   
   OR
   
   Select Pro-Rata to split the remainder equally among all beneficiaries added to the trust.

6. If the trust has income beneficiaries and if any trust income is to go to the surviving client, enter this percentage under the Income Beneficiaries container.

7. If applicable, go to the Return Rates subtab and enter the expected return rates for each field. By default, the investment income is reinvested into the trust.

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1. Select the for Add General Bequest and choose either Cash or Remainder from the menu.
2. Select the Max Excl. option to indicate that the value of the distribution is equal to the bequeathing client’s remaining applicable exclusion amount at the time of death. This option can only be selected once per client.
3. Select the Beneficiary, Distribution Type, and the Value ($ or %) for the bequest.
   Note: If the Max Excl. option is selected the Value ($ or %) is inaccessible.
4. If applicable, use the Infl and +/- Add'l fields to model the effects of inflation and/or any other indexation you wish to apply to the bequest.

1. Select Add Asset Bequest.
2. Enter the Source Asset, Beneficiary, and Value ($ or %) for the bequest.

• Selecting this option launches the Estate Planning Report Settings dialog box and set the options for the Estate Planning Report.

• Select this option to create the following trusts:
  • Marital trust – If one or both clients are US citizens.
  • Qualified domestic trust (QDOT) – If one or both clients are resident aliens.
  • Credit shelter trust (CST) – Always created.
  • State qualified terminable interest property (State QTIP) – If the clients live in a state that allows QTIP election.