|· The favorable spousal IRA rollover rules were left unaltered, providing the owner’s spouse with handsome deferral opportunities if named as the beneficiary of these accounts.
· The age for taking a qualified charitable distribution (up to $100,000 annually) from an IRA remains at 70 ½.
· For owners dying after 2019, their designated beneficiaries will be required to liquidate the entire IRA by the end of the 10th year following death. For example, if husband passes his IRA to wife and then she dies and passes it to their children (or qualifying trusts for their children), at the second spouse’s death, the 10-year compressed taxation period starts.
· Note that these rules do not apply for inherited IRAs where the owner died before 2020, except when a beneficiary of such an inherited IRA dies, in which case the 10-year rule then applies.
· Also note that some beneficiaries are exempt from the compressed 10-year rule, being spouses, disabled beneficiaries, chronically ill beneficiaries and minors (with the 10-year compressed period merely postponed until adulthood).
· Old style “see through” trusts were drafted with a view toward the prior statute, which allowed a “stretch” of the income tax over the heir’s life expectancy. These same trusts need to be reviewed and reconsidered, given the Secure Act. Some considerations follow.
· If a single owner dies in their 70’s, their old style trusts may restrict their heirs to 10 years. Under the Secure Act, we would now prefer to use the owner’s longer (ghost) life expectancy and can do so if we update the trust planning.
· Any “conduit” type trusts in an (old law) estate plan would allow the beneficiary to receive the IRA funds over their life. Under the Secure Act, a conduit trust requires that the beneficiary receive all the funds in 10 years. This may be too soon for that access to funds.
· Trust income tax rates reach the highest marginal rate at roughly $13,000 in income, so this needs to be considered, given the 10-year compressed time frame for liquidation of an IRA.
And finally, the Farner & Perrin way forward
· Considering the magnitude of this tax law change, there is no substitute for attentiveness to updating your estate plan. Give us a call to determine what changes you may wish to make to your particular plan.
· Analyze the advisability of a [partial] Roth IRA rollover, depending on relative tax rates of you and your heirs (and likely timing of death).
· Give thought to the attractive alternative (for some) of having your IRA pass to a “charitable remainder trust,” which can mimic the old style “stretch IRA” for your heirs, leaving the remainder at their deaths to charity.
Bottom line is we have immersed ourselves in this new tax law and are standing by, ready to help you react when you are ready.