The SECURE Act Passing Warrants Updating Your Estate Plan
Passed in late December, the SECURE Act makes a number of important changes to retirement plans that also impact estate planning. Most notably, the Act eliminates the “stretch” IRA for non-spouse beneficiaries, meaning anyone other than your spouse who is the beneficiary of your IRA can no longer only take the required minimum distributions over their lifetime and pass what is left onto future generations. This was a huge benefit because the funds could grow, tax-deferred, over the course of the beneficiary’s lifetime.
Below, we discuss some of these changes and what your options might be to address them:
Elimination of The Stretch
The Act requires that these beneficiaries withdraw all of the funds within an IRA within 10 years of the IRA holder’s death, which would effectively result in a tax increase. However, spouses and several others are able to treat the IRA as their own, including:
- Those who are chronically ill or disabled
- Those who are no more than 10 years younger than the account owner
- Minor children (until they reach the age of majority, and then they have 10 years to withdraw the money)
One option available to try and get around this loophole is disclaiming: If the individual who inherits the inherits the IRA disclaims it or a portion of it, anyone who inherits the IRA can stretch it over their life expectancy. However, it has to be done within nine months of the IRA owner’s death.
What About Conduit & Special Needs Trusts?
Under the new law, if the IRA is held by a conduit trust, it must be completely distributed to your non-spouse beneficiaries in one lump sum by the end of the 10th year after the owner’s death. As a result, your original intention for setting up the trust may be frustrated because all of the assets essentially need to be distributed and, as a result, are no longer necessarily protected from certain events, such as bankruptcy or divorce proceedings.
Under the SECURE Act, disabled beneficiaries fall under an exemption that allows them to continue to receive stretch withdrawals during their life if they are the only beneficiary of the trust; in other words, if the trust also provides distributions to a spouse, it reverts to the 10-year rule.
Contact Our Florida Estate Planning Attorneys with Any Questions
In light of the SECURE Act passing, it is a good idea to sit down with an estate planning attorney right away in order to figure out what if any of your estate planning documents need to be updated. This is especially important in terms of figuring out under what circumstances you may end up paying trust tax rates versus individual tax rates.
No matter what your needs, Moran, Sanchy & Associates can work with you to meet your needs. Contact our Sarasota wills & probate attorneys today to find out more.