New law could impact how estate plans are structured

On Behalf of | Aug 7, 2019 | Trusts

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 likely changes the tax treatment of inherited IRA accounts. The legislation was approved in the House and will likely be approved in the Senate as well. Previously, Nevada residents could transfer an IRA to beneficiaries who weren’t spouses. Those beneficiaries could then stretch distributions throughout their expected life spans.

However, the SECURE Act would generally require the balance to be withdrawn within a decade of the current owner’s death. An exception would be made if the beneficiary’s age is within 10 years of the current account holder’s age. If a minor inherited an IRA, the clock wouldn’t start until that child reached the age of majority. A surviving spouse can still inherit an IRA and stretch the payments over the rest of his or her lifetime.

If a person dies without designating an IRA beneficiary, it would become part of that person’s estate. The money inside of the account would need to be distributed within 10 years according to the SECURE Act. Previously, any IRA balance that became part of an estate had to be distributed within five years. It is important to note that the new legislation would apply to qualified retirement plans such as 401(k) or a 403(b).

Ideally, individuals will treat the trust planning process as an ongoing one. This is because changes to the tax code could make a current plan obsolete or less effective than it otherwise could be. If adjustments aren’t made to an existing trust, it may not meet a person’s needs while alive or after passing. An estate planning attorney may be able to help create or alter a trust document in a manner that conforms to applicable laws.