Florida residents who have IRAs should be aware of how a provision of the SECURE Act, which was passed on May 23, 2019, will impact their IRAs. It is also important to understand how the new legislation will impact any estate plans that include IRA trusts.
The provision allows the elimination of the stretch IRA, a type of IRA that gives beneficiaries the option to extend, over the course of their lifetimes, the distributions from IRA accounts that they have inherited. The stretch IRA has now been replaced with a 10-year payout for the majority of non-spouse beneficiaries, which includes trusts.
There has been a longstanding sentiment in Congress that retirement accounts should be used solely for retirement and not as tools for estate planning. In the Senate, members are considering a bill that will lower the payout period for beneficiaries who inherit retirement accounts to just five years, with some exceptions.
For people who have designated a trusts as the beneficiary of their IRAs, the change in the law means that they cannot rely on such estate plans ensuring that the funds will be controlled for the beneficiaries or that the stretch IRA can be used. The changes will impact individuals with large IRAs the most, as they tend to be more likely to assign a trust as the beneficiary of an IRA so that the distributions can be controlled and the IRA preserved for an extended time.
An attorney who practices estate planning may assist clients who have IRAs with determining how changes in the IRA may impact their estate plans. The attorney might consider the goals of a client and may recommend alternative estate planning vehicles and strategies to ensure that the funds left to certain beneficiaries can be properly managed.