Secure Act – Things You Need To Know

On December 20, 2019, President Trump signed the Setting Every Community Up for
Retirement Enhancement Act (SECURE Act). The SECURE Act, which is effective January
1, 2020. The Act is the most impactful legislation affecting retirement accounts in decades.
The SECURE Act has several positive changes: It increases the required beginning date
(RBD) for required minimum distributions (RMDs) from your individual retirement accounts
from 70 1⁄2 to 72 years of age, and it eliminates the age restriction for contributions to qualified
retirement accounts. However, perhaps the most significant change will affect the
beneficiaries of your retirement accounts: The SECURE Act requires most designated
beneficiaries to withdraw the entire balance of an inherited retirement account within ten years
of the account owner’s death.1

The SECURE Act does provide a few exceptions to this new mandatory ten-year withdrawal
rule: spouses, beneficiaries who are not more than ten years younger than the account owner,
the account owner’s children who have not reached the “age of majority,” disabled individuals,
and chronically ill individuals. However, proper analysis of your estate planning goals and
planning for your intended beneficiaries’ circumstances are imperative to ensure your goals
are accomplished and your beneficiaries are properly planned for.

Under the old law, beneficiaries of inherited retirement accounts could take distributions over
their individual life expectancy. Under the SECURE Act, the shorter ten-year time frame for
taking distributions will result in the acceleration of income tax due, possibly causing your
beneficiaries to be bumped into a higher income tax bracket, thus receiving less of the funds
contained in the retirement account than you may have originally anticipated.

Your estate planning goals likely include more than just tax considerations. You might be
concerned with protecting a beneficiary’s inheritance from their creditors, future lawsuits, and
a divorcing spouse. In order to protect your hard-earned retirement account and the ones you
love, it is critical to act now.

1If a beneficiary is not considered a designated beneficiary; distributions must be taken by the fifth
year following the account owner’s death. Common examples of beneficiaries that are not designated
beneficiaries are charities and estates. See Treas. Reg. § 1.401(a)(9)-3, Q&A (4)(a)(2) and
1.401(a)(9)-5, Q&A (5)(b).

Review/Amend Your Revocable Living Trust (RLT) or Standalone Retirement Trust (SRT)
Depending on the value of your retirement account, we may have addressed the distribution
of your accounts in your RLT, or we may have created an SRT that would handle your
retirement accounts at your death. Your trust may have included a “conduit” provision, and,
under the old law, the trustee would only distribute required minimum distributions (RMDs) to
the trust beneficiaries, allowing the continued “stretch” based upon their age and life
expectancy. A conduit trust protected the account balance, and only RMDs–much smaller
amounts–were vulnerable to creditors and divorcing spouses. With the SECURE Act’s
passage, a conduit trust structure will no longer work because the trustee will be required to
distribute the entire account balance to a beneficiary within ten years of your death. We
should discuss the benefits of an “accumulation trust,” an alternative trust structure through
which the trustee can take any required distributions and continue to hold them in a protected
trust for your beneficiaries.

Consider Additional Trusts
For most Americans, a retirement account is the largest asset they will own when they pass
away. If we have not done so already, it may be beneficial to create a trust to handle your
retirement accounts. While many accounts offer simple beneficiary designation forms that
allow you to name an individual or charity to receive funds when you pass away, this form
alone does not take into consideration your estate planning goals and the unique
circumstances of your beneficiary. A trust is a great tool to address the mandatory ten-year
withdrawal rule under the new Act, providing continued protection of a beneficiary’s
inheritance.

Review Intended Beneficiaries
With the changes to the laws surrounding retirement accounts, now is a great time to review
and confirm your retirement account information. Whichever estate planning strategy is
appropriate for you, it is important that your beneficiary designation is filled out correctly. If
your intention is for the retirement account to go into a trust for a beneficiary, the trust must
be properly named as the primary beneficiary. If you want the primary beneficiary to be an
individual, he or she must be named. Ensure you have listed contingent beneficiaries as well.
If you have recently divorced or married, you will need to ensure the appropriate changes are
made because at your death, in many cases, the plan administrator will distribute the account
funds to the beneficiary listed, regardless of your relationship with the beneficiary or what
your ultimate wishes might have been.

Other Strategies
Although this new law may be changing the way we think about retirement accounts, we are
here and prepared to help you properly plan for your family and protect your hard-earned
retirement accounts. If you are charitably inclined, now may be the perfect time to review your
planning and possibly use your retirement account to fulfill these charitable desires. If you are
concerned about the amount of money available to your beneficiaries and the impact that the
accelerated income tax may have on the ultimate amount, we can explore different strategies
with your financial and tax advisors to infuse your estate with additional cash upon your death.

Give us a call today at 352-205-4455 to schedule an appointment to discuss how your estate plan and
retirement accounts might be impacted by the SECURE Act.

Sumter County

8630 East County Road 466, Suite A
The Villages, FL 32162

Marion County

6035 SW 54th Street, Suite 200
Ocala, FL 34474

Citrus County

547 West Fort Island Trail, Suite H
Crystal River, FL 34429