It's a new year, which means new laws. Effective on Jan. 1, the SECURE Act—Setting Every Community Up for Retirement Enhancement—will dramatically change how the industry approaches estate planning by substantially reducing the payout period for many beneficiaries of retirement assets.

SECURE eliminates the stretch IRA as an estate plan option, unless the beneficiary qualifies as an eligible designated beneficiary (EDB). SECURE replaces the life expectancy payout rule that was in effect for decades with a 10-year payout rule. This rule requires that all funds must be distributed out of the plan by Dec. 31 of the 10th year after the date of death of the retirement plan participant.

There are five categories of EDBs exempt from SECURE's 10-year payout rule. If a beneficiary falls into one of these five categories, she can enjoy the benefit of tax-free growth over a longer period during which the retirement assets will be distributed.

First, a surviving spouse qualifies as an EDB under SECURE, and little will change when planning for this beneficiary. A surviving spouse will still be able to elect a spousal rollover of the inherited retirement assets and treat them as her own IRA; a conduit trust for the surviving spouse can still use the life expectancy payout; and the combination QTIP-conduit trust will work the same under SECURE during the surviving spouse's life.

Second, a minor child also qualifies as an EDB. Notably, this exception is only available to the child of a retirement plan participant—it is not available to a grandchild or more remote descendant of a retirement plan participant. If a conduit trust were created for the minor, the trust would be eligible for the life expectancy payout. But once the child attains majority (18 or 21, depending on the state) the 10-year rule applies.

The third and fourth categories, though different, follow similar rules under SECURE. Beneficiaries who are disabled or chronically ill will qualify as EDBs. This status is determined at the time of the retirement plan participant's death and does not change if the beneficiary becomes disabled or chronically ill at some time after the retirement plan participant's death.

Each of these groups is granted two special breaks that apply to multi-beneficiary trusts, which are not available to the other three categories of EDBs:

• If a trust is to be divided immediately into a separate trust for each beneficiary, the life expectancy payout rule will be applied separately for the portion payable to any EDB who is disabled or chronically ill.
• If some of the trust's beneficiaries are disabled or chronically ill, then the life expectancy payout rule will apply to the EDBs, and any beneficiary who is not disabled or chronically ill will be treated as a beneficiary of the EDB upon the death of the EDB.

For the fifth and final category, a beneficiary who is less than 10 years younger than the retirement plan participant qualifies as an EDB. For example, if an 85-year-old man names his 80-year-old sister as his beneficiary, she would qualify as an EDB and she would be entitled to a life expectancy payout.

These five categories provide EDBs an exception to the new 10-year rule, but all other beneficiaries will be subject to the 10-year rule. And when an EDB dies, the EDB's beneficiaries will be subject to the 10-year rule. At this time, it is unclear what the outcome will be if an EDB designates another EDB as his beneficiary or if a trust instrument creates a trust for the benefit of another EDB after the death of the first EDB.

SECURE is in its infancy, and it will take time for the industry to sort through the many unanswered questions that it presents. One thing is certain—there is no "one-size-fits-all" solution to the planning challenges created by SECURE, and individuals should work closely with their estate planners, financial advisers and accountants to craft a plan that meets their unique needs.

Matthew D'Emilio is a managing member and Jennifer Smith is a member of McCollom D'Emilio Smith Uebler in Wilmington, Delaware. D'Emilio practices in the areas of estate planning and wealth transfer, estate and trust litigation, estate and trust administration, business transactions, and tax law. Smith practices in the areas of estate planning, estate and trust administration, tax planning wealth preservation and fiduciary litigation.