The Secure Act and Its Impact on Estate Planning:

With the Secure Act passed by congress in recent years, providing new rules for the use of IRA accounts, many are wondering what effects it will have on their estate planning.  Besides taking away the cap on when you can contribute to your IRA (formerly age 70 ½), and raising the required minimum age to take distributions from your IRA (from age 70 ½ to 72), the biggest change affecting estate planning is that IRA beneficiaries will have to withdraw all of the IRA funds within 10 years after the IRA owner’s/participant’s death.  This eliminates the option of keeping the assets in the IRA for the beneficiary’s lifetime.  Unless you are a spouse of 10 years, a qualifying charity or other exception, the result of this legislation will lead to taxes needing to be paid on the withdrawn proceeds earlier than expected. Plus, in some cases, funds may become available to beneficiaries earlier than the plan participant intended.

As an alternative, many of these IRA’s are currently set up having a “conduit trust” as the initial beneficiary (for the benefit of ultimate beneficiaries named in the trust), with limited instruction only to hold the funds until the minimum distributions were required pursuant to the old law.  This in many cases is now insufficient because the new law will force that trustee to distribute ALL of the assets in 10 years after the participant’s death.  That 10-year mark for some beneficiaries may be too early (such as an age in which management of funds may be difficult).  Therefore, the IRA plan may need to be changed designating a different (or amended) trust that has more broad instruction allowing for the trustee to hold the assets longer, to use and invest the for the trust beneficiaries as the participant intended; rather than simply distribute the funds to a loved one prematurely. 

This is often known as an “accumulation trust.” Simply put, such a trust is more specifically crafted to stand the test of time as it accumulates assets under the control of a trustworthy individual (selected by the participant). With this option, though funds may still be required to be withdrawn by the trust (as the initial beneficiary) within 10 years after the participants death, resulting in a taxes coming due, the trust may still continue to hold and invest the remaining IRA funds for years to come, ensuring that the participant’s loved ones are cared for as intended and on his/her timetable. 

For more information on these plans, please feel free to contact Gee Law for a free consultation.