The SECURE Act Passed in The Night: What This Means for Your Estate Plan
While everyone was busy with the holidays, legislators effectively passed the SECURE Act’s provisions in the budget bill signed in late December. We have previously discussed the important effects that the legislation will have on stretch IRAs and thus estate planning for non-spouse beneficiaries, however, the changes made via the Consolidated Appropriations Act – set to go into effect in 2020 – are so significant that everyone with an estate plan should review how their plans may be affected with an estate planning attorney. Some of your main concerns might include beneficiary designations, conduit trusts, and restructuring your entire of your entire IRA account, as we discuss in greater detail below.
Death of the Stretch
Of all the changes made to estate planning via the SECURE Act, the elimination of the “stretch IRA” is the one that most people are concerned about, as it affects most beneficiaries that will inherit IRAs after 2019. Beneficiaries are now required to withdraw all of an IRA’s assets within 10 years of the death of the individual who owned the IRA. This means that heirs will no longer be able to stretch out distributions over time and thus defer income taxes, which eliminates a significant tax benefit for those who were significantly younger than the IRA owner.
This goes far beyond simply eliminating a tax benefit for heirs and into long-term planning for IRA owners who may have been using the benefits of the stretch IRA to convince beneficiaries to leave plan assets alone for some time; perhaps by naming an accumulation trust as the IRA beneficiary instead of a conduit trust in order to protect those assets.
However, it is important to note that there are still exceptions, i.e. beneficiaries who are not subject to the 10-year payout rule, who can withdraw a plan’s assets over their life expectancy, including heirs who are chronically ill or disabled and surviving spouses. Also note that minor children are considered exceptions until they reach 18 (and therefore a plan’s assets will need to be paid out by the time they reach age 28).
So What Should I Do?
At a minimum, you should review all of your IRA and plan beneficiary designations and see if you want to make any adjustments; for example, turning a conduit trust into an accumulation trust, or holding IRA assets into a conduit trust and then bequeathing the rest of the estate into another trust so that your assets can be held onto even longer. Some may also wish to place a portion (or all) of their IRA into a trust and/or Charitable Remainder Trust. And if you chose specific beneficiaries just maximize the benefits of a stretch plan, you may want to rethink your beneficiaries, as there may be others who would best obtain the benefits of a maximum 10-year-deferral.
Work with The Right Estate Planning Attorney
Note that all of these changes should be coordinated with your will, as it could affect a number of other assets and decisions; even power of attorney if you feel that you may need to designate someone who can change beneficiary designations.
Regardless of your specific circumstances, if you live in Florida, contact our experienced Orlando estate planning attorneys at Gierach and Gierach, P.A. to find out how we can help.