February 2021 Issue: Feeling inSECURE about Using Trusts for IRAs Under the SECURE Act?-Feeling inSECURE about Using Trusts for IRAs Under the SECURE Act? by Samantha J. Gagliardo and Benjamin R. Westcott

Feeling inSECURE about Using Trusts for IRAs Under the SECURE Act? by Samantha J. Gagliardo and Benjamin R. Westcott

Pdf Summary

The SECURE Act, enacted in December 2019, changed the rules for withdrawing funds from inherited IRAs. Previously, beneficiaries could stretch their required minimum distributions (RMDs) over their own life expectancies, but now only eligible designated beneficiaries (EDBs) can do so. The act applies the 10-year rule to beneficiaries of IRAs held in trust unless the beneficiary is an EDB.<br /><br />There are still opportunities to use trusts with IRAs despite the SECURE Act. Conduit trusts can be used to provide for a surviving spouse while preserving the remaining portion for adult children. RMDs can be taken over the spouse's life expectancy, but the 10-year rule applies when the spouse dies. Similarly, a conduit trust can be used for minor children, who are EDBs, until they become legal adults.<br /><br />Accumulation trusts can be used when an IRA owner wants to name a long-term trust as the beneficiary. The trustee controls the timing of distributions, taking into account income tax rates and each beneficiary's needs. Only accumulation trusts with disabled or chronically ill sole beneficiaries can avoid the 10-year rule.<br /><br />Charitable remainder trusts (CRTs) provide an opportunity for income tax deferral. IRA withdrawals paid to a CRT are not immediately taxed but are taxed as they are distributed to the beneficiary. This can effectively spread the taxation over a longer period than the 10-year rule.<br /><br />While tax laws can change, it is important for IRA owners to strategically think about their goals and consider using trusts within the limitations of the SECURE Act to achieve estate and tax planning objectives.

Keywords

SECURE Act

inherited IRAs

required minimum distributions

eligible designated beneficiaries

10-year rule

conduit trusts

accumulation trusts

income tax rates

disabled beneficiaries

charitable remainder trusts