Dear Clients and Friends,

It is a new year, and with the new year comes significant tax legislation that could have a significant effect on your retirement planning.

On December 20, 2019, new tax legislation – the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE”  Act) – was signed into law.  The SECURE Act, which is part of a broad appropriations bill, makes substantial changes to the laws governing retirement plans as of January 1, 2020.  The most notable change for estate planning purposes is the elimination of the ability to stretch certain inherited retirement accounts over the beneficiary’s life expectancy.  In addition, the SECURE Act raises the age at which required minimum distributions (RMDs) must begin from the year in which the taxpayer attains age 70 ½ to the year in which the taxpayer attains age 72.

Prior to the SECURE Act, if an Individual Retirement Account (IRA) or defined contribution account was payable to a “designated beneficiary” upon death, then the RMDs to be made upon the death of the account owner could be stretched over that designated beneficiary’s life expectancy.  In order to be considered a “designated beneficiary,” the beneficiary had to be an individual or a trust that met certain specific requirements.

The SECURE Act significantly changes prior law by providing that an IRA must be distributed by the end of the 10th year following the year in which the retirement account owner dies.  There are exceptions to this general rule which apply if the designated beneficiary of the retirement account is one of the following: (1) surviving spouse, (2) a disabled or chronically ill individual, (3) the child of the decedent who is younger than 18 years of age, or (4) an individual who is not more than 10 years younger than the decedent.

In light of the new 10-year rule imposed by the SECURE Act, we recommend that you review your retirement planning.  The following are some strategies that may be considered:

  1. Review your Beneficiary Designations. If you currently designate a trust as a beneficiary of your retirement plan, you may, under certain circumstances, want to reconsider your beneficiary designation.  For instance, if you have named a trust for a spouse as the beneficiary of your IRA, you may want to instead designate your spouse (rather than a trust for his or her benefit) as the beneficiary so as not to trigger the 10-year rule. Many beneficiary designations prepared prior to this law change often name a trust for spouse as a contingent beneficiary for estate tax planning purposes. These designations should be reviewed as well. Designations that name trusts for beneficiaries other than a spouse should also be reviewed for reasons discussed below.
  2. Review your Estate Planning Documents. Many individuals designate trusts as the beneficiaries of retirement plans.  There are two types of trusts that qualify as “designated beneficiaries”:  conduit trusts and accumulation trusts.   A “conduit trust” allows for RMDs from inherited IRAs or defined contribution plans to be paid out over the life expectancy of the income beneficiary because the trust merely acts as a conduit paying out the income and does not allow for any distributions from the retirement account to accumulate in the trust. By contrast, an “accumulation trust” allows for the accumulation of distributions from the retirement account in the trust, but both the current and remainder beneficiaries were considered when determining the oldest beneficiary for RMD purposes. Individuals should review their estate planning documents in light of the new 10-year payout rule imposed by the SECURE Act.  For instance, if you have designated a conduit trust as the beneficiary of your IRA, then the trust beneficiary will receive the full amount of the retirement account within a 10-year period (rather than over the life expectancy of the beneficiary).  For various reasons (asset protection, ensuring that wealth is passed on to future generations, and the like), it may not be desirable for distributions to be made from the trust to the beneficiary within a 10-year period.  In that case, an accumulation trust may be preferable to a conduit trust.  It is for this reason that, if you have designated a trust as a beneficiary of your IRA, you should review your estate planning documents to determine whether changes should be made.
  3. Roth Conversion. A Roth Conversion will convert a taxable retirement account into an account where the growth and distributions are tax free by subjecting the amount converted to tax at ordinary income tax rates at the time of the conversion.  Significant analysis should be undertaken to determine whether the benefits of the Roth Conversion outweigh the accelerated payment of income taxes.  As part of this analysis, you should consider whether income tax can be paid from funds that are outside of the retirement account being converted. If you need to use the retirement assets to pay the accelerated income tax, the benefit of the conversion will be reduced. Under the right circumstances, the Roth Conversion can provide for a way to manage tax brackets and help to minimize some of the impact from the SECURE Act.
  4. Charitable Remainder Trusts (CRTs). Individuals with a charitable intent may consider designating a CRT as the beneficiary of an IRA. A CRT is exempt from income tax and, thus, could receive a lump sum from a retirement plan without adverse consequences.   With a CRT, taxable distributions from the IRA can be made over the beneficiary’s lifetime (rather than the 10-year period), and upon the beneficiary’s death, the balance of the IRA could be distributed income tax free to charity. A CRT could, therefore, provide asset protection to a beneficiary of a retirement plan, however, the assets must ultimately pass to charity.
  5. Life insurance planning opportunities. Life insurance can be used as a hedge against an untimely death that may reduce the benefits of a Roth Conversion. Life insurance can also be used to replace lost retirement plan growth. The larger taxable IRA distributions which now must be made over a shorter term can be used to fund life insurance premiums as a way to replace assets. This strategy may be very effective for individuals who have excessive RMDs at high tax rates and may be subject to estate tax.

There are additional strategies that could also be considered to minimize the impact of the SECURE Act, but, under most circumstances, the analysis should begin with the above options. Each individual’s situation is different and there is no “one size fits all” strategy.  Accordingly, we recommend that you undertake a thorough review of your retirement plan strategies in light of the SECURE Act.

We are here to help you navigate the new rules under the SECURE Act. Please feel free to reach out to us with any questions or to set up a time to meet with us to discuss your specific situation.

Happy New Year!

Gunster’s Private Wealth Services Attorneys

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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.

About Gunster

Gunster, Florida’s law firm for business, provides full-service legal counsel to leading organizations and individuals from its 12 offices statewide. Established in 1925, the firm has expanded, diversified and evolved, but always with a singular focus: Florida and its clients’ stake in it. A magnet for business-savvy attorneys who embrace collaboration for the greatest advantage of clients, Gunster’s growth has not been at the expense of personalized service but because of it. The firm serves clients from its offices in Boca Raton, Fort Lauderdale, Jacksonville, Miami, Orlando, Palm Beach, Stuart, Tallahassee, Tampa, The Florida Keys, Vero Beach, and its headquarters in West Palm Beach. With nearly 200 attorneys and 200 committed support staff, Gunster is ranked among the National Law Journal’s list of the 500 largest law firms and has been recognized as one of the Top 100 Diverse Law Firms by Law360. More information about its practice areas, offices and insider’s view newsletters is available at


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