The SECURE Act was signed into law on December 20, 2019, and significantly changes estate planning choices for retirement benefits. With the SECURE Act there are generally three categories of beneficiaries. This article will briefly address a category known as eligible designated beneficiaries which has 5 subcategories. These categories include:
1. The surviving spouse of the participant. The surviving spouse beneficiary enjoys the same benefits as before the SECURE Act and can still use the life expectancy payout. However, on the death of the surviving spouse the exception no longer applies, and a ten-year payout begins.
2. Minor child of the participant. The life expectancy payout applies to a child of the employee who has not reached majority. When reaching majority, the 10-year rule applies.
3. Disabled beneficiary. The life expectancy payout applies to a beneficiary who is disabled. When a disabled beneficiary dies then the 10-year payout rule applies.
4. Chronically ill individual is similar to the disabled beneficiary subcategory.
5. Less than 10 years younger beneficiary. This is when the life expectancy payout applies to a person who is less than 10 years younger than the participant. Upon the death of the less than 10 year younger, the 10-year payout rule applies.
It is important that you meet with your estate planning attorney to review your retirement account beneficiary designations to ensure they are consistent with your tax and distribution objectives. In addition, if you have a conduit IRA Trust or an Accumulation Trust for your IRA then you should see an estate planning attorney to determine what changes need to be made to comply with the SECURE Act.
Thomas J. Bayles actively provides advice in the areas of trusts, wills, probate and tax planning. Please visit our website www.JensenBayles.com or call 435-674-9718 and ask for Thomas J. Bayles. The information in this article is for educational purposes only and is not intended to be construed as legal advice. Please contact an attorney for legal advice specific to your situation.