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Estate planning after The SECURE Act

On Behalf of | May 3, 2021 | Estate planning

Creating an estate plan typically involves balancing the wishes you have for your own legacy with the legal complications of an inheritance. The best estate plans typically leave detailed instructions for an executor and consider not only personal property and family circumstances but also federal and state laws.


An estate plan can prevent creditors from laying claim to your most valuable possessions and limit the tax liability for the inheritance you leave for others. Even the most carefully considered estate plan may need revisions when the law changes.


After Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, certain retirement planning rules changed, which could affect how you structure your estate.


What are the changes people need to know after the SECURE Act?

Some of the beneficial changes involve when you make mandatory withdrawals from IRAs and 401(k)s.


Retirees were once required to start making annual withdrawals and paying taxes on those funds when they reach 70 ½ years, but now they can wait until they reach 72. Additionally, you can continue making IRA contributions for as long as you keep working. Parents celebrating the birth or adoption of a child will now have the right to make a single penalty-free withdrawal of $5,000.


Additionally, there are more workers, including part-time employees, who qualify to contribute to 401(k)s. Businesses have new incentives to work with employees for retirement, ranging from tax incentives for small businesses to the ability to pool their workplaces into a multiple employer plan (MEP).


Some of these changes require that people consider their plans

These reforms do mean some losses for those planning their retirements and estates. For example, these changes substantially limit certain inter-generational planning tools, specifically Stretch IRAs or inherited IRAs.


What was before a powerful way to avoid taxation on financial resources is now far more limited. Those who inherit an IRA or 401(k) will typically have to withdraw all assets from the account within 10 years of the testator’s death. Exceptions include spouses, minor children and beneficiaries with disabilities or chronic illnesses who are no more than 10 years younger than the original account owner.


There are also changes to rules about distributions and taxes on certain kinds of trusts, so those hoping to create a trust or those already using them as part of their estate plans may need to revisit or even change the structure of their trust to protect themselves and their beneficiaries. An estate plan that changes with the times is one that will offer you the most benefit for the effort and money invested.