The secure act

On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The SECURE Act went into effect January 1, 2020. The Act is the most impactful legislation affecting retirement accounts in decades. Some of the major changes under the SECURE Act include the increasing the required beginning date for required minimum distributions (RMDs) from your individual retirement accounts from 70 ½ to 72 years of age and eliminating the age restriction for contributions to qualified retirement accounts.

However, perhaps the most significant change will affect the beneficiaries of your retirement accounts: The SECURE Act requires most designated beneficiaries to withdraw the entire balance of an inherited retirement account within ten years of the account owner’s death.

There are some exceptions to the new mandatory ten-year withdrawal rule, including spouses and children who have not reached the “age of majority.” Proper analysis of your estate planning goals and planning for your intended beneficiaries’ circumstances are imperative to ensure your goals are accomplished and your beneficiaries are properly planned for.

Under the old law, beneficiaries of inherited retirement accounts could take distributions over their individual life expectancy, sometimes called “stretching” the retirement account. Under the SECURE Act, the shorter ten-year time frame for taking distributions will result in the acceleration of income tax due, possibly causing beneficiaries to be bumped into a higher income tax bracket and may expose a greater amount of funds to creditors.

Your estate planning goals likely include tax considerations as well as protecting your beneficiary’s inheritance from their creditors, future lawsuits, or a divorcing spouse. In order to ensure your hard-earned retirement accounts are treated in the manner you desire, a review of your current planning is important in light of these recent changes.

Review/amend your revocable living trust(rlt) or standalone retirement trust (srt)

Your revocable living trust may include “conduit” provisions, where, under the old law, the trustee would be required to distribute required minimum distributions (RMDs) to the trust beneficiaries, allowing the continued “stretch” based upon their age and life expectancy.  A conduit trust protected the account balance, and only RMDs--much smaller amounts--were vulnerable to creditors and divorcing spouses. With the SECURE Act’s passage, a conduit trust structure may no longer be preferable because the trustee will be required to distribute the entire account balance to a beneficiary within ten years of your death. We can discuss the benefits of an “accumulation trust,” an alternative trust structure through which the trustee can take any required distributions and continue to hold them in a protected trust for your beneficiaries.

Review intended beneficiaries

With the changes to the laws surrounding retirement accounts, now is a great time to review and confirm your retirement account information. Whichever estate planning strategy is appropriate for you, it is important that your beneficiary designation is filled out correctly. If your intention is for the retirement account to go into a trust for a beneficiary, the trust must be properly named as the primary beneficiary. If you want the primary beneficiary to be an individual, he or she must be named, and you should understand how those distributions will take place under the new law. If you have recently married or divorced, your beneficiary designations should be updated. Ensure you have listed contingent beneficiaries as well.

Next Steps

Although this new law may be changing the way we think about retirement accounts, we are here and prepared to help you properly plan for your family and protect your hard-earned retirement accounts. If you are charitably inclined, now may be the perfect time to review your planning and possibly use your retirement account to fulfill these charitable desires.

Give us a call today to schedule an appointment to discuss how your estate plan and retirement accounts might be impacted by the SECURE Act. Because of this major change that affects most clients, we are offering a special review price of $500, which includes a review of the retirement provisions in your current living trust and a 30-minute appointment with one of our estate planning attorneys.