Eagle & Fein - April 2020

A PRIL 2020

E AGLE A ND F EIN . COM

317-726-1714

What Does the SECURE Act Mean for Your Retirement Planning? On Jan. 1, 2020, the SECURE Act went into effect, and it contains some of the most sweeping changes to retirement tax legislation in more than a decade. As estate planning attorneys at Eagle & Fein, P.C., we want to make sure you, as our clients, are fully informed about these important changes. Under the SECURE Act, the required beginning age for minimum distributions increased from 70 1/2 to 72 years old. The new legislation also repealed the maximum age for contributions to traditional IRAs and created an entirely new beneficiary category. For most of our clients, though, the most significant change was the elimination of the stretch IRA. Before the SECURE Act went into effect, if you inherited an IRA, you could take withdrawals, and pay the concurrent taxes on those withdrawals, over a long period of time. There was a tax incentive to use as much of that time as was available to you. After all, why rush and pay taxes when you can let an asset grow? Since the passage of the SECURE Act, nonspouse beneficiaries at the age of maturity are now required to withdraw and pay taxes on the full value of an inherited IRA within 10 years of inheritance. If your spouse is your beneficiary, nothing has changed. But if you have a nonspouse beneficiary, the tax consequences associated with the SECURE Act are significant. Depending on the age of your inheritor, there is a good chance that without proper planning, they will be forced to pay taxes on the full value of your IRA during their prime earning years. Don’t panic, though, because there are still ways to protect your legacy within this new framework. Many of our clients want to provide protection planning for their children in their estate plans. Protection planning involves creating trusts for the benefit of the client’s children that provide blended family protection and protection from unwise or influenced decisions, creditors, and divorce. Many of these types of trusts were created as “see-through conduit trusts, which necessitate that the required minimum distribution from the retirement account after death must flow through the trust rather than accumulating in it. Under the SECURE Act, these types of trusts lose the benefits of the protection planning

10 years after the death of the retirement account owner. For many, the loss of the protection planning for their retirement accounts is not what they want. Additionally, since the SECURE Act accelerates the full taxation of the retirement account to within 10 years (as opposed to the previous timeframe of the life expectancy of the beneficiary) for most nonspouse beneficiaries, many will want to explore ways to minimize the impact of the acceleration. One way you can protect your assets, and eliminate the taxation of the retirement account within 10 years of your death, is through the formation of a Charitable Remainder Unitrust (CRUT). With this type of trust, you can ensure that your beneficiary — your son, let’s say — gets distributions from the fund throughout his lifetime. However, at his passing, the remaining balance of the fund goes to a charitable organization of your choice. This could be an organization that already exists, or it could be an organization created within the family so that future generations can participate in planned giving. In this example, forming a CRUT won’t give your son more money overall, but it prevents him from being overloaded with a large sum of money all at once, which will protect him from unwise or influenced decisions and creditors. It also offers you an excellent opportunity to perpetuate your family values and teach your kids and grandkids about the importance of giving back. If you are concerned with the balance going to charity upon your son’s death, you can minimize this impact by combining the CRUT planning with life insurance planning. The life insurance would replace a portion of the value of your retirement account designated to charity on your son’s death for your grandchildren. Planning is personal, and what made sense for you when you originally made your plan may not make sense now. Given that the changes implemented by the SECURE Act are sweeping — we have really just scratched the surface in this article — now is an excellent time to review your estate plan and make sure your plan still accomplishes your goals and objectives. –Brian A. Eagle 317-726-1714 1

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