There have been some significant legal changes recently that may impact how you can maximize your retirement and tax planning.

Last year, Congress integrated the Setting Every Community Up for Retirement Enhancement (SECURE) Act into the Further Consolidated Appropriations Act of 2020, which included special considerations about inheriting retirement accounts for those beneficiaries classified as disabled or chronically ill.

Before the change, almost anyone could inherit a retirement account and then stretch the distributions from that inheritance over their lifetime. This stretch allowed the funds to sit in the tax-deferred account and accumulate wealth over a long period of time. The individual was only required to distribute a minimal amount each year.

However, the SECURE Act limited most individuals’ eligibility to stretch distributions over their life expectancy. Most beneficiaries, who are now not entitled to a stretch the inheritances from their retirement accounts, must withdraw the funds within either 5 or 10 years. This shortened timeframe does not allow inherited funds to keep growing.

But under the new 2020 rules of the SECURE Act, beneficiaries of the retirement account who are disabled or chronically ill are entitled to stretch out inherited distributions over their expected lifetime. The ability to stretch out the distributions is a huge benefit and advantage for those who meet these criteria.

In response to the new law changes, our firm is using a special trust to provide for these beneficiaries while maximizing tax benefits. The purpose of this unique SECURE Supplemental Needs Trust is to provide for the maximum benefit of the law for disabled or chronically ill beneficiaries.  The trust allows retirement account beneficiaries to receive a maximum stretch under the law.

• The trust allows a recipient to stretch the distributions from that retirement account over their life expectancy. This allows those funds in the retirement account to keep accumulating and growing.
• The trust ensures that your beneficiaries will be taxed at the minimum amount over a longer period of time.
• The SECURE Supplemental Needs Trust allows the beneficiary to benefit from the retirement account proceeds while still being eligible for public benefits, such as Medicaid or Supplemental Security Income.
• The trust allows a care manager or advocate to look out for your beneficiary after you have passed.
• The trust provides for asset protection from creditors, divorce, or other bad actors.
• The trust gives you peace of mind knowing that your beneficiary will be taken care of for many years.

If the following applies to you, you might benefit from this new law and new SECURE Supplemental Needs Trust:

• You have a loved one or another beneficiary who is disabled or chronically ill.
• You have a retirement account, such as a 401k or IRA.
• You want to make sure that your retirement account receives maximum tax advantages after your death.

The time to plan is now. Regardless of who your beneficiaries are, you need to ensure your estate plan is up-to-date in light of the new SECURE Act. Contact the Davis Law Group office to make an appointment with one of our experienced Estate Planning and Trust Administration attorneys who can help you determine the best way to make these new laws work in you and your loved one’s best interest.