2020 Estate Planning Updates
While it is always important to make sure your estate planning documents are up to date, there were some major changes in the law effective this year that might impact your planning. We hope you will take a minute to review this letter to inform yourself about changes that could have an impact on you and your loved ones.
SECURE Act Overview
Late last year, President Trump signed into law the “Setting Every Community Up for Retirement Enhancement (SECURE) Act,” making major changes to retirement plans. The new law is designed to provide more incentives to save for retirement, but it may require you to rethink some of your planning.
Some of the biggest changes deal with the amount of time someone, other than a spouse, has to draw down all of the IRA benefits following the death of the account owner, the age when the account owner has to start taking distributions from the account, and the ability of a worker to contribute to an IRA even after reaching age 70 ½. Also, the new law allows for penalty-free (though not tax-free) withdrawals from retirement savings to offset some costs of having or adopting a child.
Given these changes, you should reevaluate your estate plan if your estate includes retirement assets. Some people have used stretch IRAs as an estate planning tool to pass assets to their children and grandchildren. One way of doing this has been to name a trust as the IRA’s beneficiary, and these trusts may have to be revised to conform to the new rules.
For more information on the SECURE Act, see the Details section that follows.
Review Your Existing Documents
While considering the new SECURE Act legislation, it is also a good time to make sure there haven’t been any other changes that need addressing. As you do this, questions to consider are:
- Did you buy any real estate, stocks, bonds or other investments during this past year and, if so, does your current estate plan distribute that property in accordance with your wishes?
- Did you purchase any life insurance or annuities? If so, are the beneficiaries properly designated?
- Has your financial situation changed such that we need to look at the tax provisions of your estate plan?
- If you have a Revocable Living Trust, are all of your assets placed in the trust?
- Are all of your beneficiary designations up to date on your retirement plan accounts?
- Have you had any new additions to the family (children, grandchildren or others) that you want to plan for?
- Do you have a plan in place to pay for long-term care costs if you become disabled or incapacitated?
- Are all of your Agents, Executors and/or Trustees available and still able to serve?
SECURE Act Details
Some of the specific changes that the SECURE Act brings include:
- Stretch IRAS. The biggest change eliminates “stretch” IRAs. Under prior law, non-spouse IRA beneficiaries could choose to take distributions over his or her lifetime, with required minimum distributions calculated based on the beneficiary’s life expectancy. This allowed the money to grow tax-deferred over the course of the beneficiary’s life and to be passed on to his or her own beneficiaries. The SECURE Act requires beneficiaries of an IRA (with very limited exceptions) to withdraw all the money from the IRA within 10 years of the IRA holder’s death. In many cases, these withdrawals would take place during the beneficiary’s highest tax years, meaning that the elimination of the stretch IRA is effectively a tax increase on many Americans. This provision will apply to those who inherit IRAs starting on January 1, 2020.
- Required minimum distributions. Under prior law, you had to begin taking IRA distributions when you reached age 70 ½. Under the new law, individuals who are not 70 ½ at the end of 2019 can now hold off distributions until age 72.
- Contributions. The new law allows workers to continue to contribute to an IRA after age 70 ½, which is the same as rules for 401(k)s and Roth IRAs.
- Annuities. The newly enacted legislation removes roadblocks that made employers wary of including annuities in 401(k) plans by eliminating some of the fiduciary requirements used to vet companies and products before they can be included in a plan.
- Withdrawals. The new law allows an early withdrawal of up to $5,000 from a retirement account without a penalty in the event of the birth of a child or an adoption. Currently, there is a 10 percent penalty for early withdrawals in most circumstances.
With the changes coming at us every day, it is likely there will be other things that impact your estate plan and retirement funds in the upcoming year. We intend to keep you informed of these changes through our monthly newsletter that will be emailed. If you need to update your email address or make sure you are on our email list, please contact Cassandra Duke, our Client Services Coordinator, at 225-744-0027 or at firstname.lastname@example.org.