Leaving a Legacy
For many people, creating a Trust document is one of the most important parts of the legacy that they will leave to their family. They spend time and money to create a document that, hopefully, will help their family to better cope with circumstances regarding their estate when they pass. It allows the creator of the trust to help their heirs avoid high tax bills, spending in excess to settle probate, or depleting the assets too quickly. Trusts give people the ability to control when and how their money is distributed even after they are gone.
While Trusts can offer people a lot of peace of mind, Trusts can also come with some unintended consequences. There can be issues that come up after the grantor has passed that cause difficulties for the Trustees and heirs. The Setting Every Community Up for Retirement Act of 2019, the SECURE Act, has complicated these issues in many cases.
Changes with the SECURE Act
The new rules and regulations detailed in the SECURE Act regarding beneficiaries of IRAs and 401(k)s are changing the way Investment Advisors and Attorneys are thinking about the distribution of assets to beneficiaries. Under the new law, beneficiaries are no longer able to stretch the distribution of assets over their lifetime and they no longer have Required Minimum Distributions (RMDs). They are now required to distribute all assets within 10 years of the IRA owner’s passing. When Trusts have language that relies on RMDs, it could mean that all distributions are barred until the 10th year when a complete distribution of the account will be required. The withdrawal will be fully taxable as income and the beneficiary will be required to pay taxes on the full amount of the distribution in one year. That is a big change and could have drastic tax consequences for beneficiaries if the assets are not distributed properly.
Update your Trust
If you currently have a Trust, it would be good to speak with your Attorney as soon as possible to update any language in the Trust that might have negative consequences under the new law. It would also be wise to talk to your Financial Advisor to make necessary changes to your investment strategy to verify that your Estate Plan is still in line with your wishes given the changes with the new law. For tax specific advise it is always a good idea to consult a tax professional who can help you to address the specifics of your situation.
Time for a New Strategy?
There are many positive changes in the SECURE Act that will help people to save more money for retirement and help to protect their assets. However, as with any new legislation, there are new rules that might potentially change the strategy that is best for you and your family. Having a trusted team of experts in your corner will help you to navigate any necessary changes to your accounts and your investment strategy for the SECURE Act, or any future legislation that may come.
Do you need help evaluating your Estate Strategy now that the SECURE Act has passed? Please call our office to discuss your personal situation, we are happy and offer our opinion on the best possible options for you.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.