The SECURE Act’s Impact on Your Estate Planning
By: Barry E. Haimo, Esq.
June 4, 2020
Just before Christmas 2019 (after months of hold up) the SECURE Act was passed as an aggressive measure to thwart looming worries that, based on market conditions and retirement statistics, older Americans are likely to outlive their assets.
The current US retirement system as a whole has already shifted its model to incorporate supplemental savings at the outset of any retirement plan since living on Social Security alone is nearly impossible.
The Current State of Retirement Across the US
Some of the statistics that fed the worries leading these shifts come from the government. Others from investment market giants.
- The US Bureau of Labor Statistics says only about half of our adult population participates in workplace retirement plans, and those who do aren’t investing much.
- Vanguard revealed that its 401K clients aged 65+ have a median of about $58,000.
Although the SECURE Act is meant to alleviate a crisis that doesn’t necessarily apply to those who’ve already long been planning for more than just their own retirement, they will undoubtedly be affected too.
Perhaps the one estate planning attorneys believe will have the greatest impact on their clients’ planning efforts is what experts are calling “the death of the stretch IRA.”
The Original Purpose of Your Stretch IRA
If you currently have a stretch IRA as a part of your overall estate plan, your planning team most likely intended for it to serve as a wealth transfer method for the person(s) you designated to inherit your IRA account(s).
In a nutshell, this estate planning strategy allowed you the potential to “stretch” your IRA distributions — and, thus, its tax benefits — over several generations. The core rule that made this possible was that minimum distributions to named beneficiaries were based on IRS life-expectancy tables.
This strategy reduced the amount of taxable withdrawal and allowed the IRA assets to accumulate tax-free wealth over a longer period of time — decades, even.
The signing into law of the SECURE Act has ended the ability to have and to use a stretch IRA. The government expects the tax implications of the entire bill to be an estimated $15.7 billion in paid tax over the next 10 years.
Post-SECURE Act: Estate Planning Changes to Consider
The elimination of the stretch IRA calls for a full payout of an inherited IRA account within 10 years of the death of the original account holder. Two of the most important considerations regarding your IRAs’ post-SECURE Act are revisions to your beneficiary forms and restructuring of your IRA planning.
Revisions to Your Beneficiary Forms
Here are some examples of how and why you may want to change out your designated beneficiaries on wills, trusts, and IRA documents:
- IRAs bequeathed to conduit trusts may better serve an estate now as bequeathments to accumulation trusts.
- Some cases may call for portions of the IRA to be directly gifted to beneficiaries instead of entrusting them.
- Where grandchildren were originally named in order to “stretch” benefits, it may make sense to update beneficiaries to children now instead.
Restructuring an Entire IRA Plan
For clients who originally contributed to a charity, you may want to now include them as a beneficiary of your IRA account directly. Another example option would be to distribute an IRA balance to a Charitable Remainder Trust (or CRT) at death. This could help stretch distributions to the charity under CRT rules.
In any case, your most important step is calling your estate planning attorney for a review of your estate plan sooner than later. Discuss how the SECURE Act impacts your unique plan, and ensure changes to protect your legacy.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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