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How will the SECURE Act impact my estate plan?

The SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 became law on December 20, 2019. It's designed to prevent older Americans from outliving their assets. The new law will have an impact on estate plans involving IRA accounts, however.

An estate planning strategy called a "stretch IRA" allows IRA account holders to transfer their accounts to non-spouse beneficiaries. Before the SECURE Act became law, IRA accounts could be stretched throughout the life expectancy of beneficiaries.

How does the SECURE Act work?

The SECURE Act places a cap of 10 years on distribution from the date of the account owner's death. That means beneficiaries would be required to withdraw all inherited IRA funds within 10 years from the death of the original IRA account owner. Exceptions only apply to spouses, minor children, beneficiaries suffering from chronic illness or disabilities, or beneficiaries not more than 10 years younger than the account owner.

Retirement account owners must now change their approach to estate planning. Those who plan on establishing estate plans may see revisions to beneficiary designation forms. In addition, the SECURE Act may have an impact on existing:

  • Conduit trusts: Trusts designed specifically to immediately transfer IRA assets to beneficiaries upon distribution.
  • Revocable trusts: Trusts that can be altered depending on changes to the trustee's health and circumstances.

What other options do I have?

If the account owner continues to allow his or her retirement account to be distributed through the revocable trust, it could be forced onto the beneficiary at the 10-year threshold. This poses problems for trustees who wish to protect their assets. Here are some ways it could be avoided.

Retirement accounts may be protected through a retirement trust. This is designed specifically to protect retirement assets to accounts distributed to non-spousal beneficiaries. It also allows trustees to determine when and how much of the retirement funds are distributed to beneficiaries.

IRA account owners can also establish a Charitable Remainder Trust. This type of estate plan is a tax-exempt irrevocable trust designed to distribute income to beneficiaries and donate additional assets to charity.

Establishing a will or trust can get complicated. If you're planning on including a retirement account in your estate plan, you may be unsure which options are available to you. If you have an existing estate plan, you may need to make changes to it. The Indiana estate planning attorneys at Hocker & Associates LLC can help guide you through this complex process.

Our legal team has decades of experience helping people establish estate plans that meet their wishes and their family's needs. Contact us online to schedule your free consultation.

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