Call For A Consultation 855-997-7522
People shaking hands in office
Logo Icon ESTATE PLANNING: THE SECURE ACT – TIME TO REVIEW YOUR ESTATE PLAN

In December, the President signed the Setting Every Community Up for Retirement Enhancement (the “SECURE Act”), which went into law on January 1, 2020. The SECURE Act was the first major retirement legislation passed in the last ten years.

As a result of the SECURE Act, retirement planning has become a must, especially in California. Under the prior law, it was possible to stretch inherited individual retirement accounts (“IRA”) over the expected life expectancy of your children. It was a powerful tool for estate planning because your children would be able to stretch the distribution required under the IRA to their lifetime expectancy rather than their deceased parents. The SECURE ACT has changed this feature.

Under the SECURE Act, in additional to raising the age at which minimum required distributions are mandated from 70.5 years to 72 years, inherited IRA’s must be distributed to the beneficiaries within ten years from the date of the death of the last deceased parent. There are five exceptions to the 10 year rule: a surviving spouse; the minor children of the decedent (until they turn 18 and then the balance must be distributed within ten years); disabled persons and chronically ill persons who are the beneficiaries of the IRA; and a beneficiary who is less than ten years younger than the decedent. These individuals (other than minors as referenced above can continue to stretch their distributions over their lifetime expectancies rather than within this ten-year period.

As a result, it may no longer be advisable to have a conduit trust provision in your revocable living trust which allows you to stretch out the inherited IRA to your adult children once you pass away since they will not be able to take advantage of the stretch provisions previously available. Since your adult children will have to take complete distribution of the inherited account by the end of the ten year period, rather than their lifetime expectancies, these required distributions may bump your adult children into a higher tax bracket, thereby lessening the amount of money they actually receive through inheriting your retirement accounts.

Another feature of the SECURE Act is that the age restriction for contributions to a qualified retirement plan were eliminated. Also, 401(k) plans will be allowed to offer annuities, which were not allowed under the prior law. Small businesses will be able to establish safe harbor 401(k) plans that are easier to administer and less costly than traditional 401(k) plans. Many part-time workers may be able to participate in their employers’ 401(k) plans.

If you have substantial retirement savings or anticipate having substantial retirement savings, now is the time to review your estate plans or to establish an estate plan. For people owning real property in California, a revocable living trust is an important part of an estate plan. If your real property is not in a revocable living trust, upon the death of owner (or both owners if a married couple), the estate will have to be probated in court which is costly and a lengthy process. Your revocable trust may need to be amended to account for the new provisions of the SECURE Act.

The time to review your estate plan is now and it is definitely time to start an estate plan if you do not have one. The attorney’s at Poole Shaffery & Koegle, LLP are ready to help with your estate planning.