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SECURE Act – Revisiting Your Estate Plan

SECURE Act – Revisiting Your Estate Plan

The SECURE Act, which passed in December, made the most pronounced changes to retirement accounts in a long time. Those changes also have a ripple effect that has us revisiting our clients’ estate plans.  Under previous law, non-spouse beneficiaries of Individual Retirement Accounts (IRA’s) were able to stretch the Required Minimum Distributions (RMD’s) due from those accounts over their life expectancy, which was advantageous in terms of spreading out the tax due on those withdrawals.  With the law change those distributions need to take place within a ten-year period for a non-spouse beneficiary.

Trusts as Beneficiaries

Many individuals, in their estate plan, have listed Trusts as the beneficiaries of their IRA accounts in order to help protect assets that their beneficiaries inherit.  The most popular of these Trusts is called a conduit trust.  After the IRA owner passes away the IRA pays its RMD each year to the Trust, which in turn then pays the beneficiary.  These Trusts made a lot of sense to protect assets when beneficiaries could potentially be taking distributions over a number of decades.  With the change in law, at the end of the ten-year distribution period the entire retirement account would be payable to the beneficiary outright, thus eliminating any protections that the conduit trust would provide.  

If protecting the assets is a primary concern, individuals might consider creating an accumulation trust in which the RMD’s can be paid annually, and then a Trustee can have the authority to decide when or how to release those funds to the beneficiary.  

Another option if the IRA owner is charitably inclined is to name a Charitable Remainder Trust (CRT) as the beneficiary of the IRA.  The CRT can be structured so that the beneficiary receives a payment each year from the Trust, which is taxable just like an RMD would be, and the payments can be made over their lifetime.  The benefit here is that the account can continue to grow on a tax-deferred basis, essentially recreating the Stretch IRA.  At the end of the beneficiaries’ lifetime (or a set term of years) the remaining assets go to one or more charities that the IRA owner selected upon creating the CRT.  

The SECURE Act and its Impact on the Estate Plan

In summary, the SECURE Act could have a meaningful impact on the estate plan you currently have in place. It will force individuals to take a different approach to protecting retirement assets for beneficiaries and to think more creatively about ways to limit the accelerated taxation that beneficiaries will now face with the stretch IRA being eliminated. 

As always, if you should have any questions on how your estate plan is impacted, please do not hesitate to reach out to your Advisor.  

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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