ARTICLE: How the New SECURE Act Will Affect Trust-Based Estate Planning

How the New SECURE Act Will Affect Trust-Based Estate Planning

Trusts are a highly advantageous component of estate planning for millions of Americans. A new comprehensive retirement reform, however, has changed the rules in ways that may require immediate attention. 

Last year, Congress passed the Setting Every Community Up for Retirement Enhancement Act, also known as the SECURE Act. One of the goals was to help individuals accumulate more assets for retirement. Among the benefits are expanded access to “tax-advantaged” retirement accounts like 401(k)s and IRAs, and longer periods of tax deferred asset growth. For example, the age for required minimum distributions (RMD) was extended from 70½ to 72, and age restrictions for making contributions to qualified retirement accounts have now been eliminated. 

Lawmakers, however, also severely altered longstanding aspects of trust-based estate planning. Let us share an example.  Many estates have relied on “conduit provisions” embedded into trust agreements as a way to plan for retirement accounts. There are many reasons to plan this way and it was often a technique used in estate planning for second or third marriages. Under the trust agreement, a trustee acted as a conduit by taking the required minimum distribution from a retirement account and passing it on to the beneficiaries. Further, those RMD payments were also allowed to “stretch” over long periods of time to reduce taxes. Now, trustees must distribute the entire balance of an applicable tax-advantaged account within 10 years of the account owner’s death. That means pre-SECURE Act estate plans may need to be amended with your estate planning attorney to reflect your current goals for your legacy.

Let us share another point. Due to the combination of higher yearly RMDs under the law, and the new 10-year withdrawal requirement, less money will grow tax deferred in impacted retirement accounts. This means more taxable money may go to your beneficiaries, which gives your estate beneficiaries a potentially higher tax burden and more inherited money earlier than you may have previously planned. 

This could be concerning when you consider thrusting a lifetime of hard-earned retirement proceeds on financially immature young adults. Planning like this, that could leave them with sudden access to large amounts of money, may leave them vulnerable to making financial mistakes. A better way to manage this may need to be identified in your meeting with your estate planning attorney. Together, you can determine how you could restructure your existing estate plan to support long-term growth and stability. 

The beginning of a new year is always a good time to revise or create an estate plan, but these new changes to long standing retirement laws may make it even more necessary to consider certain estate planning revisions. Do not wait to contact your estate planning attorney to learn not only how The SECURE Act may impact your retirement, but what you need to do to protect your estate plan. As always, we encourage you to ask us your questions now, or any time in the future.

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We at Roth Elder Law, PLLC, believe in providing services in a way that clients can easily understand and meaningfully participate in designing and maintaining their estate plan for their loved ones, as well as be assured that their plan will be administered according to their wishes.