Zell Law, PLLC

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SECURE Act Changes Estate Planning for Retirement Assets

As my July 9th blog and December 21, 2019 blog indicated, the SECURE Act will negatively impact the ability to stretch IRA benefits in the future. For example, many of our clients elected to use a “conduit trust” through which IRA and other retirement plan benefits flow following the death of a surviving spouse. This will necessitate that by the 10th year following the surviving spouse’s death, all the funds will be paid to the trust beneficiary (i.e., usually, the surviving children or other designated beneficiary). This may not be your intention and may require amending your trusts to be accumulation trusts.

To minimize the income tax on the funds that pass to that trust, you should talk to your accountant regarding the efficacy of converting all or a portion of your IRAs, destined for your children’s or grandchildren’s trusts, to a Roth IRA. In a future blog, we will provide you with an overview of this strategy.

You also may want to discuss the extent to which any of your IRAs are payable to an accumulation trust for your children or grandchildren. When the IRA is paid to an accumulation trust over the 10-year period of time, it is very likely that substantial wealth will be trapped in the trust and taxed at the highest trust income tax rate. Again, to overcome this you may want to examine the utility of Roth conversions prior to your deaths. Conversely, the use of accumulation trusts may make sense if you desire to protect the IRA assets from your beneficiaries’ creditors.

Roth conversions and other strategies may may sense in light of the change in law imposed under the SECURE Act. In addition, the delay in the required minimim distribution date (from 70-1/12 years to 72-1/12 years) and the revised life expectancy tables under new Treasury regulations make planning for retirement assets more complex than ever and will require input of your estate planning team members. For more information on this very important topic, please email me at [email protected]

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