As you may be aware, on December 20, 2019, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law, which may impact your estate planning objectives.
This new law includes the most significant changes to retirement plans since the Pension Protection Act of 2006 and will impact most people and also how retirement benefits are treated post death.
If you have incorporated into your estate plan, a conduit, pass through or accumulation trust for your retirement account, you will need to talk to us and your financial planner about how the SECURE Act will affect the existing planning. The planning may need to be updated as soon as possible. This is largely because the SECURE Act has eliminated the stretch IRA to non-eligible designated beneficiaries.
There’s much more, but here is a quick run-down of the SECURE Act and a reminder that this may affect your existing estate plan, how you designated beneficiaries for your existing IRA accounts and how you wish for these accounts to be handled after you pass away
Please consult with us to see if you need to make changes as a result of this new law.
Inherited Retirement Accounts: When the original account owner passes away, only eligible designated beneficiaries can stretch out the distributions over their lifetime. This is generally only for spouses, some disabled beneficiaries and children in their minority. For everyone else, adult children and all others – once they inherit your IRA – they must take all distributions over a ten year period from death of the original account owner.
There are some creative solutions that can be put in place including a charitable remainder trust or other strategies that will involve updating your existing trust. In general, you need to know that the stretch IRA that we all know is no longer available for children.
Required Minimum Distributions Age Increase to 72: Good News! The SECURE Act increases the age for which you have to take a RMD to aged 72. If you are not yet 70 and half in 2020, you can now wait until age 72.
Adoption/Birth Expenses: You can now take out up to $5,000 from an IRA for birth and adoption expenses with some rules.
Charitable Distributions: You can still make tax free distributions to charities from your IRA at age 70 and half.
FEDERAL ESTATE TAX EXEMPTION AMOUNT INCREASE AND UPDATE
For this year, 2020, the Federal Estate Tax Exemption Amount is now $11,580,000 per person or $23,160,000 for married couples. Yes, this is in the millions. This law is to sunset for deaths in 2026 unless Congress acts sooner as a result of the election later this year.
When the exemption from Federal Estate Tax expires it will revert back to $5,000,000 adjusted for inflation – likely between $5 to $6m. We are encouraging all of our clients with larger estates to review the gifting options this year.
If you have questions, please call and schedule your review appointment today!