Ahead of the Curve: 4 Things You Should Know About The SECURE Act

Why you should review your IRA beneficiary designations immediately!

By Kristin J. Hall, Esq.
Associate at Selzer Gurvitch Rabin Wertheimer & Polott, P.C.


The SECURE Act (formally known as the “Setting Every Community Up for Retirement Enhancement Act”) was passed in December 2019 and was effective for the tax year 2020. Because of the onset of the Covid pandemic in early 2020, many taxpayers with retirement accounts may not have considered the implications of its new distribution rules and revised their estate plans accordingly. As individuals meet with their attorneys either virtually or in person to revisit their estate plans, the rules of the SECURE Act should be considered.


1. What are the new distribution rules under the SECURE Act?

The SECURE Act introduced a new maximum 10-year payout requirement for many beneficiaries of employer-sponsored retirement accounts and IRAs (both referred to in short as “IRAs” in this article). Before the SECURE Act, most beneficiaries of a decedent’s IRA could withdraw the balances of the inherited IRA in installments over their life expectancy (a “life expectancy payout”). The SECURE Act’s 10-year distribution requirement is a dramatic change to how quickly IRAs are taxed when they are passed down to most heirs, and it has sparked an urgent need for IRA owners to review their estate plans.

2. What is the impact of the new distribution rules?

If a spouse is the IRA beneficiary, that spouse will still be allowed to use a life expectancy payout from the IRA or through a rollover IRA created by the spouse. If the IRA beneficiaries are the decedent’s minor children, they will be allowed to use a life expectancy payout until they reach majority age, but then they will be required to take the remaining balance of the IRA in distributions within 10 years. If the IRA beneficiary is disabled, chronically ill, or less than 10 years younger than the decedent (but not the decedent’s adult child), that beneficiary will also be able to use a life expectancy payout. The SECURE Act requires all other individual beneficiaries – adult children, grandchildren, nieces and nephews, or others – to take the distributions within 10 years of the IRA owner’s death. That means that these beneficiaries will have access to the balances in IRAs quicker, perhaps sooner than is appropriate for the beneficiary. These beneficiaries will have to pay the income tax due on the distributions sooner, which may push them into a higher income tax bracket. And that was the purpose of the SECURE Act–raising tax revenue from retirement accounts by accelerating distributions to the beneficiaries.

3. What if the IRA beneficiary is a trust?

If an IRA is payable to a trust rather than directly to individuals, the identity of the individual trust beneficiaries determines which payout rule applies. The impact is different depending on who the trust beneficiaries are and how the trust requires distributions to be made.

If the trust is a “conduit” trust, all the IRA distributions paid to the trust are required to be paid out annually to the beneficiary. When the trust beneficiary qualifies for a life expectancy payout, the trust can stretch out distributions from the IRA and the corresponding payments to the trust beneficiary over the beneficiary’s life expectancy. In contrast, when the beneficiary is subject to the 10-year rule (e.g., an adult child who is not disabled), a conduit trust will be required to take the entire balance of the IRA within the 10 years and then distribute it outright to the beneficiary in the year received. The accelerated payout required by the SECURE Act might not be the scenario that the IRA owner desired for the beneficiaries in originally designating the trust to receive IRA distributions.

If the trust is an “accumulation” trust, the IRA distributions paid to the trust can be held in the trust and do not have to immediately be paid out to the beneficiary. The distributed amounts can be held and invested in the trust during the life of the beneficiary and distributed to that beneficiary or even to other beneficiaries later. When the trust beneficiary is subject to the 10-year payout rule, an accumulation trust allows both distributions from the IRA and then payment of distributed amounts to the beneficiary to be deferred until later in the 10 years after the IRA owner’s death. An accumulation trust may be a better approach than a conduit trust, if there is a concern that trust beneficiary might be exposed to creditor issues that may lessen over time or the beneficiary’s interests would not be served best by early access to IRA distributions. However, because of the compressed tax brackets that apply to trusts (the highest income tax rate of 37% applies beginning with $13,050 of taxable income), IRA distributions that are paid to and then retained in an accumulation trust likely would be subject to higher income taxes than IRA distributions that are paid to conduit trusts and then distributed to IRA beneficiaries, which bear income tax at the rates that apply to the IRA beneficiaries.

4. What actions should you take in response to the SECURE Act?

Review IRA beneficiary designations. If your beneficiary is your spouse, no change is necessary as a spouse can continue to take IRA distributions over his or her life expectancy. For other beneficiaries, consider the 10-year payout that may apply and the potential impact of that accelerated payout on the beneficiary — earlier access to funds, potentially higher income taxes, etc. — and whether it would be appropriate to have IRA distributions payable in trust instead of directly to beneficiaries. Consider whether an accumulation trust may be a good approach to delay IRA distributions to beneficiaries whose circumstances suggest outright distributions may be squandered to creditors or by the beneficiary in poor spending decisions.

If IRA benefits are already payable to a trust under your existing estate plan, review the terms of the trust to understand how distributions will be paid to beneficiaries. Consider when IRA distributions must be paid to the trust under the SECURE Act and when the trust must pay them to the trust beneficiary. If the trust is a conduit trust, consider whether it should be replaced with an accumulation trust. If the trust is for the benefit of your spouse, the terms of the trust should be reviewed to ensure that they allow the life expectancy payout.


Let Selzer Gurvitch help you.

It is a good rule of thumb to review your estate plan every three to four years, as laws change and families face new circumstances, to make sure your estate planning documents are structured to carry out your wishes and appropriately provide for loved ones. Kristin J. Hall and the other attorneys in the Estates and Trusts practice group at Selzer Gurvitch are here to help you achieve and implement your estate planning goals.


Contact the Author:

Kristin J. Hall, Esq.
Associate, Selzer Gurvitch Rabin Wertheimer & Polott, P.C.
(301) 634-3108


About the Author

Kristin J. Hall, Esq. is an associate attorney in the firm’s Estate Planning, Trust & Estate Administration, and Tax Planning practice groups. At Selzer Gurvitch, Kristie counsels clients on how to best provide for their families while taking into consideration tax savings and asset protection. Kristie also administers trusts and estates and helps clients deal with the issues they face when family members are recently deceased. Kristie grew up in the Washington, DC area as the middle child of three, which gave her a strong sense of justice and empathy for others. Her passion for trusts and estates comes from her genuine interest in tax law and a natural desire to help families. Kristie graduated cum laude with a BA in Psychology from Tulane University in New Orleans, LA, before earning her Juris Doctor from American University Washington College of Law in Washington, DC. She has donated many hours of community service through the Maryland Volunteer Lawyers Service and school board and PTA chair positions. She lives in downtown Rockville with her three kids and dog.


Disclaimer: The information contained in this material is not intended to be considered legal advice and should not be acted upon as such. Because of the generality of this material, the information provided may not be applicable in all situations and should not be acted upon without legal advice based on specific factual circumstances.