SECURE ACT And ESTATE PlAnnIng: EnSURIng YoUR ClIEnT’S PlAn IS STIll UP To dATE
Real Property, Probate & Trust Law Section
Chairs: Elaine McGinnis – Law Office of Elaine McGinnis, P.A. and Kristin Morris – Shutts & Bowen
The SECURE Act has
impacted distribution
schedules of inherited
IRAs and may have
O
n December 20, 2019,
the president signed
the Setting Every
Community Up for
Retirement Enhancement Act of
2019 (“SECURE Act”) into law. 1
The SECURE Act has been touted
as one of the most significant
pieces of retirement legislation in
over a decade and has made
significant changes in the way
Americans plan for retirement.
The passage of the SECURE
Act serves as an opportunity to
remind clients to review beneficiary
designations on retirement
accounts. The SECURE Act may
alter a client’s choice of beneficiary
and may lead a client relying on the
stretch IRA as an estate planning
device to form trusts to ultimately
reexamine their entire estate plan.
Prior to the SECURE Act, the
stretch IRA served as a life/estate
planning strategy that prolonged
the beneficial tax status of
inherited IRAs to the beneficiary
by allowing those monies in the
decedent’s IRA to be distributed
over the expected lifetime of the
beneficiary. This would allow for
an extended deferral of taxes. As
previously mentioned, this strategy
has been affected by the SECURE
Act, as it generally mandates that
significant tax impacts
on beneficiaries.
IRAs inherited by non-spouses be
paid within 10 years of the plan
holder’s date of death. The
beneficiary may choose to take
no distributions until the 10-year
anniversary of the plan holder’s
death, but that would mean that
the entire inherited amount would
be distributed at that time. This
may be enough to cause individuals
to reexamine their plans, as unlike
other gifts, IRAs come with a
tax burden.
Payable on death accounts
have generally been somewhat
troublesome, as these typically pass
outside of probate, without regard
to the client’s will, or their trust.
This is why it is imperative that
you always know what designations
your clients have made as regards
to those accounts. Having that
information available will allow
you to properly advise clients on
any potential unforeseen and
unwanted consequences brought
on by making designations,
including issues brought on by
leaving funds to trusts that do
not contain language designed to
deal with any potential tax issues.
However, even those that have
previously set up trusts that contain
conduit or accumulation language
may want to review those
designations. The death of the
stretch IRA means that the majority
of beneficiaries of “Conduit Trusts”
will have access to the funds much
sooner than the Grantor may have
originally anticipated. That outcome
may be enough to prompt clients to
review their estate plan.
All in all, the SECURE Act has
impacted more than just retirement
planning. The new rules and
limitations put in place also impact
the distribution schemes of inherited
IRAs and can have significant
tax impacts on beneficiaries.
Encouraging your clients to review
their beneficiary designations to
make sure they are still up to date
post-SECURE ACT is necessary to
ensure that their estate plan is up to
date and still reflects their wishes. n
Pub. L. No.
116-94 (Dec. 20,
2019).
1
Author:
Luis A. Silva,
LL.M. (Tax) –
Faehner, PLLC
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