Estate Planning & Portability {PFP Section}

Summary

Podcast Summary: AICPA Personal Financial Planning (PFP)

Episode Title: Estate Planning & Portability {PFP Section}
Release Date: February 7, 2025
Host: Keri Sinnett (A)
Guest: Robert Keebler, CPA (B), Partner at Keebler and Associates
Length: ~21 minutes

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Episode Overview

This episode dives into a critical estate planning topic: portability of the federal estate and gift tax exemption. Host Keri Sinnett welcomes Robert Keebler, a nationally recognized estate planning CPA, to clarify what portability is, why it's essential for surviving spouses, how deadlines and tax law may impact planning, and practical steps practitioners should take. The discussion is timely given the elevated estate tax exemption set to sunset, potentially reducing a family’s tax shelter by millions. The episode is a must-listen for CPAs, lawyers, and anyone advising high-net-worth clients on estate transitions.

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Key Discussion Points & Insights

1. Portability Basics & Core Concepts

• What is Portability?

  • Portability allows the unused portion of a deceased spouse’s federal estate and gift tax exemption to transfer to the surviving spouse.
  • Example: “If I died…instead of my wife having $13,990,000, she can double that.” [02:15]
  • This transfer allows up to nearly $28 million to pass tax-free federally (2025 figures), but not all states recognize portability.
  • Portability does not apply to the Generation Skipping Transfer (GST) tax.

• Key Terms Defined

  • “Deceased Spousal Unused Exclusion (DSUE)” – the portion of the exemption not used at death, which can transfer to the surviving spouse.
  • “Bypass Trust” – a trust created at death to avoid estate tax at the second spouse’s death.

2. Operational Mechanics & Filing Deadlines

• Use It or Lose It

  • Portability is only preserved by timely filing IRS Form 706 (estate tax return).
  • “If you don’t do the right things to use the exclusion amount…is it possible for it to be lost if you fail to file a return? That’s the heart of the problem.” [04:50]
  • The standard deadline is 9 months after death, with a possible 6-month extension (15 months total).

• Late or Corrective Elections

  • If no timely election is made, estates below the exemption amount can file for up to 5 years after death.
  • Over the threshold? Relief is not available after missing original deadlines.

3. Why Practitioners Miss Portability – And the Cost

• Estate tax knowledge among CPAs/lawyers has eroded as the exemption rose (“muscle memory” faded) [06:37].
• “At 14 million, you’re not talking to every client about portability.” [07:59]
• With the exemption potentially dropping, planning for a lower exclusion is crucial: “That man or woman…when they die, will only have half of the exemption.” [11:34]

4. Strategic Planning Decisions: DSUE vs. Bypass Trust

• Spreadsheeting the Decision:

  • Deciding between using the portability (DSUE), funding a bypass trust, or combining both is highly numerical.
  • “This is not a decision for English majors…it’s a decision for CPAs.” [09:26]
  • Factors: potential asset growth, ages/health, types of assets (e.g., IRA considerations).

• Basis Step-Up Considerations:

  • If the surviving spouse holds assets until death, there is a full step-up in basis, possibly reducing future capital gains taxes.
  • “If she owns that property when she dies…she gets a step up in basis.” [16:37]
  • Sometimes partially funding the bypass trust is optimal (“Solomon-like approach”).

5. Actionable Guidance for Practitioners

• Ask the Question Every Time:

  • “Every time somebody dies, ask yourself the question, should we be filing an estate tax return to obtain portability?” [18:22]
  • Even if only preparing the 1040, practitioners should raise the topic if large wealth is evident.

• Cultural Differences in Practice:

  • Division of responsibility for filing Form 706 varies geographically—lawyers in northeast tend to be more engaged, while elsewhere CPAs may be expected to handle it.

• Risk/Reward Framing for Clients:

  • “You’re talking $5,000 to $10,000 to do that return compared to the possibility of saving $5.6 million of estate tax.” [18:45]
  • “When I do that, people just look at me like why are we having this conversation, right?” [19:22]

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Notable Quotes & Memorable Moments

• On Portability Filing:

  • “As long as you file the return, [portability] is an automatic election...you can elect out of it, but you can’t really elect into it. Just filing the return elects into it.” (B) [04:50]

• On Planning for Sunsetting Exemption:

  • “Until the tax law clarifies itself, we should assume it will sunset and that that man or woman sitting across from you will…have only half of the exemption that they have today in 2025.” (B) [11:34]

• On Practitioner Responsibility:

  • “Even if you’re just doing the 1040s and 1041s, ask the question…it doesn’t mean it becomes your responsibility, but you can certainly ask the question and make sure you’re forcing everyone in the room to think through the issue.” (B) [12:25]

• On Balancing Basis Step-Up and Bypass Trust:

  • “You might say the disclaimer sounds good, but let’s think about you keeping the property. So when you die there’s a second step up in basis…And this is something you just have to spreadsheet.” (B) [16:37]

• On Value of Filing for Portability:

  • “I will draw on a piece of paper a fraction…and when I do that, people just look at me like, why are we having this conversation?” (B) [19:22]

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Timestamps for Important Segments

• Introduction & Opening Question – [00:00-01:59]
• Portability Overview & Federal vs. State Laws – [01:59-04:32]
• Portability Mechanics & Deadline for Filing – [04:32-05:54]
• Late Filing & Corrective Actions – [05:54-07:59]
• Impact of High Exemptions & Sunsetting – [07:59-11:57]
• Advisor Roles, Practitioner Challenges – [12:25-13:12]
• How to Start “The Conversation” – [13:12-14:43]
• Risk of Missing Deadlines, Five-Year Rule – [14:54-16:03]
• Basis Step-Up & Planning Tactics – [16:37-18:10]
• Final Advice & Key Takeaway – [18:10-19:43]

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Final Takeaways

• Always Evaluate Portability: Every client death is a prompt to review whether a timely portability election has been (or should be) made.
• Assume the Exemption Will Drop: Plan conservatively and assume the estate tax exemption reverts to ~$7 million per person post-2025.
• The Cost of Filing Is Negligible Versus Potential Savings: Paying for the return can yield millions in tax savings.
• Communication and Diligence Matter: Even if not “required,” practitioners must ask the portability question when large estates are involved.

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For more resources and tools on this topic, visit the AICPA PFP section at aicpa.org/pfp.

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[End of Summary]

Transcript

[A]

Your phone rings. Your client on the other end is distraught. Her spouse just passed away. You were working on their estate plan, but it's not complete. How long do you have to use the exclusion amount before it's gone forever. Welcome to AICPA's Personal Financial Planning Podcast. This is Keri Sinnett. On behalf of the AICPA Personal Financial Planning Division, the home for professional personal financial planners, we're happy to bring you thought leadership from experts in tax, retirement estate practice management, investment risk management and client relationships. Be sure to Visit [e-mail] Pfp to find more resources and tools designed to help you deliver premier financial planning to your clients. And you may have guessed. We're going to talk about a very important area of estate planning today with Robert Keebler. He's a partner at Keebler and associates and a 2007 recipient of the Accredited Estate Planners Award. He was recognized by Forbes as one of America's top 200 CPAs. That's a pretty big distinction. I think that was just last year and CPA magazine as a top 100 most influential practitioner. In fact, I think he has over 350 favorable IRS rulings and there's more publications than I could even count. Bob is a sought after speaker at national conferences, chaired the AICPA Advanced Estate Planning Conference for years, and he's been honored as a top educator in tax by CPA Academy and my cpe. Bob, you're everywhere. You are the expert and that people want to talk to. If we had a client in a situation like the opening question, what do we need to know about portability?

[B]

Well, thank you, Carrie. And it's a great honor to be back with the aicpa. So a person dies for federal purposes, they can transfer their exemption to their spouse. So if I died, if instead of my wife having 13 million 990, she can double that. Okay, we're going to say $28 million for easy math. Okay, now that doesn't work on at every state. So some states do not allow portability. So you have to understand the law in the state you're practicing in. So if a client dies in New York, what does New York law say about portability with regard to the New York estate tax? Federal laws the same everywhere in the country. Let's just examine federal law today. Just ignoring the state for a moment. Now, basically, portability allows an executor to do a couple of things. But I can either give my exemption to my wife or I can put property into a bypass Trust. Now, to some extent I can do both. If, for example, my exemption was $14 million and I put $8 million in a bypass trust, I'd have $6 million left over. That $6 million I can transfer to my wife. Important to remember, portability only works for gift and estate tax exemption. It doesn't work for the generation skipping transfer tax. So if your goal is to transfer yours and your wife's property to your grandchildren, you're not going to use portability. You're going to use the standard bypass type structure. So Carrie, we want to understand the basic exclusion amount, which in 2025 is $13,990. The deceased spousal unused exclusion is just the amount that I didn't use during my lifetime or my death that's left over that I can transfer to my wife. And of course, the bypass trust is the trust we create when I die that avoids tax at my wife's step. So those are the key things we have to understand. Those are the three key concepts. And of course a fourth concept is anything that transfers from me to my US citizen spouse is going to be exempt from federal estate tax.

[A]

Excellent. What I hear you saying, Bob too, in one of the main tenets of portability is use it or lose it. Because if you don't do the right things to use the exclusion amount, then is it possible for it to be.

[B]

Lost if you fail to file a return? That's the heart of the problem, is that we need to actually file a return. So basically, when I die, in the perfect world, within nine months of my death, you would file an estate tax return. You would indicate to the government that we're going to use portability. Now, portability, as long as you file the return, is an auto automatic election. It's there's nothing you have to do. You can elect out of it, but you can't really elect into it. Just filing the return elects into it.

[A]

Nine months may seem like a long time when we're sitting down and looking at paperwork, but in the real world of humans that have feelings and grieving, sometimes nine months goes by really quickly. What are the main conditions that an executor can can do to make a late portability election and do they affect the surviving spouse's estate planning strategies? How does that interplay?

[B]

Sure. Well, the heart of it is you can file at 9 months, you can ask for an extension and you can file at 15 months. If you fail to do that and the estate is below the exemption, my estate is below my exemption on the day I died, then you can, for five years from my date of death, you can file a corrective return. Now, Kerry, the important thing is, so if I died and the exemption was 14, but I was only worth 10, no problem with filing for up to five years. However, if instead of being worth 14, I was worth, let's say, 20, I was over the exemption at my death, regardless of who I leave it to, I cannot go back and fix that under the five year rule. So very, very important for every CPA, even CPAs that haven't been engaged to deal with the estate tax return. And I'm not creating a standard of care here. I want to be very clear. Litigators have said, and I think they're dead wrong on this, but they said, carrie, if I'm just doing the 1040 and Elmer dies and his wife Sarah comes to see me, I have some kind of responsibility to tell her about all this. I don't think that's really true. But you can litigate anything, right? So if you're doing that 1040 and you say, well, boy, Sarah, you and Elmer must have more than $14 million worth of property, just from what I'm seeing on your income tax return, we should file for portability. And the problem is, across the whole country, there are a couple of things going on. One is the exemption's been so large for so long, people have lost their muscle memory on estate tax. So it used to be that every CPA and lawyer in the country knew this stuff when the exemption was 600,000. Not anymore. Okay.

[A]

At 14 million, you're not talking to every client about portability. And so will that change, you know, on the off chance it actually sunsets, or will we continue to really have to build that muscle memory and talking to the appropriate clients about portability?

[B]

Well, I think you have to assume you just have to have that competency. Now, we've only been talking for eight minutes, so I think if somebody listened carefully the last eight minutes and they could just store that knowledge with perfect recollection, they'd be fine. Okay? The problem is the practicing CPAs have what, 15, 20,000 things to keep in their head?

[A]

At least that many.

[B]

So basically, you look at how big was the exemption when you died, how much went to anyone other than your wife that you've used your exemption on. But the difference is above that is the sue you could potentially transfer over to your spouse. And that's a great thing, right? That is a great thing, because now when he or she dies, you have that exemption.

[A]

Absolutely. And by the way, for listeners not as familiar with portability, when we say to sue, we're talking about deceased spousal unused exclusion. So that's the basic exclusion amount that wasn't used prior to death. Bob, did I get that right?

[B]

Right. Perfect. Exactly perfect. So we have to identify our, what we're going to do. Now remember, if somebody says to you, do I use the sewer? Do I fund the bypass trust? Very difficult mathematical decision that has to be spreadsheeted. This is not a decision for English majors. It's, it's a decision for CPAs. Because if I fund the bypass trust with 14 million and it grows to 42 million by the time my wife dies, that whole 42 million is protected from tax. So I'm 63. My wife is same age, in wonderful health. She could easily see two doubles. So if I died, I'd fund the bypass trust. I wouldn't give her my to suit. On the other hand, if we were both 95, the Runway is more modest and we can work easier with DA Sue. Now, DASU also becomes part of the plan when we're working with IRAs. Carrie. Because with an IRA, I don't want to fund a bypass trust, okay? Because I'm on a ten year roll, right? I give it to my wife, she can roll it over, put it in her own name, and away we go. She can. Then when she dies, the children get 10 years. So those are some of the things we have to really think through. So you could end up with using both a bypass trust and to sue in the same estate. And that'd be very common.

[A]

That makes sense. And especially as you're breaking down the math as to what would be the most advantageous way to pursue the benefits for the surviving spouse.

[B]

Now, very important to keep in mind, if somebody died in 23 or 24 or even 25, their desu is frozen. It can't go down. Even if we sunset, their DESU stays the same. That's an important consideration. And when you're evaluating whether to tell that surviving spouse to file a return to get desu, you need to look at that through the lens of the surviving spouse having only a $7 million exemption, not a $14 million exemption. Until the tax law clarifies itself, we should assume will sunset and that that man or woman sitting across from you when they die will only have half of the exemption that they have today in 2025.

[A]

This is a year where, as practitioners, we have to be very careful. There's some very large assumptions out there. That maybe that sunset will get pushed out. But you have to plan from what you know, what is encoded in law right now. Bob, how do you handle that in. In a year like this where there is a big question mark as to will it stay 14 million, will it go higher or will it go back down to 7 million?

[B]

You take a worst case scenario and you go from there. The CPAs have to get themselves involved in this because something very terrible is happening across the entire United States. I hear this from many of my lawyer friends and many of my CPA friends non cpa, non lawyer financial advisors are boxing out the lawyers and accountants to save fees, whatever the auspices is. But it's bad. And things like this are being missed. So you do have to be very diligent. Even if you're just doing the 1040s and 1041s, ask the question. That doesn't mean it becomes your responsibility, but you can certainly ask the question and make sure you're forcing everyone in the room to think through the issue.

[A]

So, Bob, start the conversation about estate planning. Even if you're doing a 1040, what is the best opening question I can, I can have? If I'm just looking at tax issues that are not centered on estate, how do I open up that conversation? What do I say?

[B]

Well, first of all, you're sitting there, you're seeing this person for the first time since their spouse died, so obviously you're going to offer some sympathy and you've just broached the conversation. And then the conversation is, you know, have you talked to your lawyer about whether we should file a federal estate tax return? Would you like me to talk to your lawyer about that? How do we want to approach this? And you'll get a couple of answers. Well, the lawyer said we shouldn't do that. And then you might say, do you mind if I talk to him about that? Or the answer might be the lawyer's going to do it. It depends on where you are in the country, because only in the northeast part of the United States are the lawyers very aggressive on the 706 work everywhere else in the country, especially in California, Kerry, the lawyers want nothing to do with the 706s. They're letting the CPAs do them or asking CPAs do them. So, you know, it's a culture thing, but I think it's very important to broach the subject. So if you think there's any chance the surviving spouse would be over $7 million, you better ask the question.

[A]

Absolutely. This is a real game Changer because we're talking about millions of dollars of potential tax down the road. If you don't do this and it has an expiration date to be able.

[B]

To do exactly, you're on the clock. Probably should assume that the return has to be filed in a timely manner. And don't worry about the five year rule. The five year rule is kind of a diving catch. And if you miss the five year rule and you are below the exemption in the first place, then you're allowed to go through a different procedure. And you can receive a private letter request by asking for what's called 9103 relief. It's administrative relief. I mean it's through the national office of the irs. You'd only do this if you're beyond the five years. Now this is not available if the decedent husband's estate husband just died and his estate was above the filing threshold. So a gentleman dies today, his estate was 20 million bucks. You don't file on time, you're done. Even it all goes to his wife, you are done. The national office of the irs, as much as they might want to help you, statutorily cannot help you if you're below that exemption, they can help you 10 years later.

[A]

As a CPA, let's say I have a new client, it's two years after their spouse has died. Should I be asking about did you use this, where are you at in it? Because you could still be within the time frame even if they didn't do anything for portability, maybe there's still time to do something.

[B]

I think you should absolutely ask.

[A]

Excellent. Are there any other specifics, particulars that we need to be sharp on in order to be able to dive into this even more?

[B]

Well, let's say you're at a place where your client, the surviving spouse can either take the property and it becomes her property and she'll die with it, or she could disclaim and push force it into bypass trust. Portability may cover you on the estate tax side just as well as a bypass trust if the numbers work out. But if she owns that property when she dies, under current law carry she gets a step up in basis. So if you are representing a 85 year old lady and she and her husband are worth exactly $20 million and he died, you might say the disclaimer sounds good, but let's think about you keeping the property. So when you die there's a second step up in basis. And this is something you just have to spreadsheet because what you do is you divide a spreadsheet and you do barbell analysis. If we get no growth, if it goes down in value, if it goes up in value, where's the break point? And we'd want to know that. Or many times we're going to take a Solomon like approach and partly fund the bypass trust, maybe with a cottage or farmland or something that we would never sell anyway, we don't care about basis and let everything else go to the spouse. So it's kind of a balancing act.

[A]

Bob, this is brilliant and I love this insightful information into this important topic. What do you want to leave us with that we should really be thinking about on this particular issue?

[B]

I think it's a matter of every time somebody dies, ask yourself the question, should we be filing an estate tax return to obtain portability? And view everything through the surviving spouse's eyes, assuming that she has a $7 million exemption? And be flexible on that because keep in mind the pendulum will swing, Kerry, and at some point in time, if we had a Democratically, a Democratic president and a Democratic House and Senate, the exemption could come down. We just don't know. So grabbing that portability is a relatively low risk. You're talking $5,000 to $10,000 to do that return compared to the possibility of saving $5.6 million of estate tax.

[A]

Exactly. That is so significant.

[B]

And what I often do is I will draw on a piece of paper a fraction and in the numerator I'll put 5 or $10,000. In the denominator, I'll put 5.6 million, I'll line up all the zeros. And, and when I do that, people just look at me like why are we having this conversation? Right?

[A]

It becomes so obvious at that point to do a little bit of work for an enormous benefit. Bob, this has been fantastic. Thank you so much for sharing with our community of listeners. And our hope to everybody who's listening is that you got a valuable takeaway. Check out the show notes. We're going to pack it with resources on this particular topic. And if you want to learn more, visit the AICPA pfp [e-mail] we'd love to know your speaker and topic ideas for future episodes. So send us an email@financial planningicpa.org and let us know if you get value from this podcast. We'd appreciate your support by following the podcast in your favorite podcast app. So thank you for listening. I look forward to next time. Bob, thank you so much. Brilliant as always. Insightful as always, you are a top practitioner and thank you so much to be willing to share from your expertise.

[B]

Well, thank you Carrie. Thank you for having me and thanks everyone.

[C]

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