Our clients often update their wills for personal reasons such as a change in beneficiaries or to change their executor, trustee, or child’s guardian. But sometimes a tax law change triggers an estate plan update. For many people, this is one such year.
The SECURE Act, enacted Jan. 1, 2020, is one of the most impactful pieces of retirement legislation in decades. You may be aware of one of its biggest changes. It delayed the required minimum distribution age from retirement accounts from age 70½ to age 72.
Retirement distribution timing for beneficiaries
However, it also shortened the period over which your beneficiaries can take distributions from inherited retirement plans. Under the old law, beneficiaries could generally take these distributions over their lifetimes. Stretching out the receipt of taxable dollars over many years often helped reduce the tax cost.
Now, the SECURE Act requires most beneficiaries to withdraw the entire balance of an inherited retirement account within 10 years of the account owner’s death. This shorter period could increase income taxes.
Retirement assets in trusts
In addition, any trusts included in your estate planning to help manage the finances for the benefit of someone you love may no longer work as desired. Current language in your trusts may cause all retirement assets left to a trust to be paid directly to the beneficiary within 10 years.
For example, your estate plan may leave all of your assets to your children outright and create trusts for grandchildren if a child predeceases you. This new law could have the effect of leaving more assets outright to grandchildren than you intend.
If you have named any type of trust as the beneficiary of any retirement account, please consult your attorney on any updates you might consider. It may even be a good time to determine if you would still like the asset to be handled within a trust. Instead of naming a trust as beneficiary, you might name your heirs directly, depending on their ages, the amounts, etc.
Spread the word
We will be bringing this planning consideration to our clients’ attention at our regular upcoming meetings to help you consider your options (of course, in consultation with your estate attorney).
Please consider sharing this post with family and friends. You can help others by “getting the word out” on this impactful law change.
Anne is a Senior Wealth Manager and Shareholder. She is passionate about simplifying complex issues and is a huge advocate for clients as they work through personal money questions and work toward financial life goals.