SECURE Act Requires Action if a Trust is Your IRA Beneficiary

Monday, February 17, 2020

By Sarah Brenner, JD
IRA Analyst
Follow Us on Twitter: @theslottreport

Many IRA owners have named trusts as their IRA beneficiaries. You may be one. Trusts offer control from the grave and can be a smart choice, especially to protect beneficiaries who may be minors, have special needs or simply are not good with money. Naming a trust as an IRA beneficiary has always had its problems. The rules are complicated and having a trust drafted and administered can come with a hefty price tag. The ability to stretch RMDs over a trust beneficiary’s lifetime, however, was often enough to outweigh the negatives. The SECURE Act changes this equation.

Enter the SECURE Act

Under the SECURE Act, most beneficiaries will no longer get the stretch. Instead, most beneficiaries, including trusts, will be subject to a 10-year payout rule. That means all the funds in the inherited IRA must be paid out either to the trust or the trust beneficiaries within 10-years. Keeping the inherited IRA intact and using the stretch to pay annual RMDs to a trust is now a relic of the past.

Because trusts were often drafted with the goal of using the stretch in mind, under the SECURE Act many trusts will no longer work as planned. Many include language that will result in faster than expected payouts or larger than expected tax bills.

Is Your Trust Still the Right Beneficiary?

Every IRA owner who has named a trust as their IRA beneficiary should rethink that decision and reevaluate if a trust is still the way to go. The answer may still be yes for some, but for many others it will be no. If a trust is your IRA beneficiary, you should contact your financial advisor to discuss your specific situation. You may need to confer with the attorney who drafted it and decide whether the trust is still the right beneficiary. It may need to be revised or maybe scrapped altogether. This is something you should take care of sooner rather than later. If careful planning is not done, the SECURE Act could mean that your hard-earned savings may end up going to Uncle Sam instead of to your heirs. That is an outcome no IRA owner would want.

 

Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.

For white papers/other outflow pieces:

Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:

Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:

Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.