The SECURE Act and its Impact on Your Estate Plan

The SECURE Act and its Impact on Your Estate Plan

President Trump signed into law the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) effective January 1, 2020. The Act brings major changes to IRAs and 401(k)s, including the ability to delay distributions, reduced flexibility for inherited IRAs, and penalty-free withdrawals for new parents. This article focuses on the impact the SECURE Act may have on your estate plan.

As part of the estate planning process, clients focus on passing wealth to beneficiaries with minimal tax implications. Prior to the SECURE Act, a consideration in estate planning was the ability to distribute the balance of your retirement accounts to your beneficiary and allow the beneficiary to take distributions from the inherited retirement accounts over the beneficiary’s lifetime or “stretching” the distributions. The SECURE Act changes the timing of distributions from your 401(k) plans and Traditional IRAs to your beneficiary upon your death. It does not change the distributions to a surviving spouse. Subject to a few exceptions, the SECURE Act requires that a non-spouse beneficiary must withdraw the entire amount of the inherited retirement account within 10 years of the account owner’s death. Exceptions to this 10-year payout rule include payment to the account owner’s spouse, payment to the account owner’s minor child, disabled individuals, beneficiaries who are less than 10 years younger than the account owner, and chronically ill individuals.

Many estate plans include trusts that are designed to include retirement plans and distributions from those plans to a trust. A purpose of this design is to give your beneficiary the ability to stretch the distributions from the inherited retirement accounts over the life expectancy of the beneficiary. Under the SECURE Act, the retirement plan benefits must be fully withdrawn within 10 years of the account owner’s death. Note: there is no requirement that the inherited plan must be withdrawn evenly or on a fixed schedule over the 10 years, as long as it is fully withdrawn within 10 years.

What this means to you

It is important to review the beneficiary designations on your 401(k) and Traditional IRAs. The beneficiary designation will not need to be changed as a result of the SECURE Act. However, in order to properly review the impact of the SECURE Act on your estate plan, you should be aware of who is the beneficiary and contingent beneficiaries of your accounts.

If the beneficiaries are individuals, there is no need to do anything.

If the beneficiary or contingent beneficiary is your trust, you need to understand whether your trust is designed as a Conduit Trust or an Accumulation Trust. Your trust may not have a separate section titled “Conduit Trust” or “Accumulation Trust,” but it should have a section addressing the distribution of retirement plan assets.

Retirement plan assets that are paid to a Conduit Trust will be immediately distributed by the trustee to the eligible beneficiary. After the SECURE Act, the beneficiary no longer has the ability to stretch those distributions over the expected life of the trust beneficiary, and the plan assets must now be distributed to the beneficiaries within the 10 year period following your date of death.

An Accumulation Trust is typically used when a parent, through their trust, wants to control the distribution of retirement account funds to a child until the child reaches a designated age. An Accumulation Trust would receive the distributions from the retirement plan, but would not necessarily immediately distribute those funds to the child. After the SECURE Act, the trust will now have to pay out the retirement plan benefits to the child within ten years of the parent’s death if their child is an adult. If their child is a minor, the benefit must be distributed within 10 years of the child attaining the age of majority. For planning purposes, particularly for those with minor children, the use of an Accumulation Trust was an option if a parent does not want to turn over control of the funds to a very young child. Alternative strategies will now be developed to accumulate funds for children.

Retirement plan assets can still be held, managed, and controlled by a trustee, but only for a period of up to 10 years without having to make any distributions. The entire account must be distributed no later than 10 years from the date of death.

The implications of the SECURE Act for estate planning purposes are not fully known at this time. Estate planning attorneys will be exploring and developing ways to satisfy clients’ objectives for delaying distributions of retirement plan assets for more than 10 years, giving consideration to available tax advantages, providing funds, and controlling the timing of distributions. Alternatives being reviewed include making gifts to a Charity Remainder Trust where the beneficiaries would receive an annuity. A client may also cash in the IRA and use the proceeds to purchase life insurance with the IRA funds, and the trust could retain the life insurance proceeds with the ability to control the distribution of the insurance proceeds.

You should review the objectives of your estate plan on a periodic basis and discuss planning options available for your retirement accounts. If you have any questions or would like to discuss this matter, please feel free to contact us.

Christopher G. Schultz is an equity partner, the managing partner of the Firm, and a member of the Executive Committee. He works out of our Livonia office and concentrates his practice on business law, real estate law, and estate planning. He maintains an AV Preeminent Rating from Martindale-Hubbell, which is the highest possible rating an attorney can achieve for both ethical standards and legal ability.

Mr. Schultz assists clients with estate planning matters, including wills, trusts, charitable giving, estate administration, irrevocable trusts, gifting and special needs trusts.

Additionally, he represents and counsels manufacturers, financial service institutions, and small and large businesses in the retail and service sectors in many areas, including entity election, start-up issues, shareholder and owner relationships, employment matters, mergers, acquisitions, real estate matters, and business succession planning. Mr. Schultz is also a Certified Public Accountant (CPA).

He may be reached at (734) 261-2400 or


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