In articles that were published in the Legal Intelligencer in September and October 2014, we shared our thoughts on estate planning and estate administration with qualified retirement benefits, which include both IRAs and qualified retirement plan benefits, such as 401-K accounts (collectively referred to herein as tax deferred retirement accounts). Until now, not much had changed in the landscape that impacts our thinking for planning with this type of asset. However, the new provisions of the SECURE Act, which were enacted on Dec. 20, 2019, and become effective as of Jan. 1, 2020, change a key factor that goes into the planning process. The SECURE Act stands for “Setting Every Community Up for Retirement Enhancement.”

Prior to the enactment of the SECURE Act, one of the valuable benefits of careful estate planning with tax deferred retirement accounts was to preserve the tax deferral benefit of these assets over the life expectancy of children, or even better, grandchildren of the deceased funder of the account (the participant) if the beneficiary designation form was properly completed. The economic value of that life expectancy “stretch-out” could be very significant, so much so that at times it could be more valuable than leaving assets without any built-in taxability to the same beneficiaries. Careful planning was essential to ensure that what is technically known as a “designated beneficiary” was properly named to achieve the most beneficial stretch-out. Not all named beneficiaries qualify as “designated beneficiaries.” For example, if an estate (as opposed to a revocable trust) is named as, or is otherwise deemed to be, the beneficiary, the payout options (which could be a required five-year payout) were generally less favorable than the payout over the life expectancy of an individual designated beneficiary. Those days of careful planning to obtain the maximum life expectancy stretch-out are now over for the beneficiaries of a participant who dies on or after Jan. 1, 2020.

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