The SECURE Act: Ballistic Missile Alert or False Alarm

By:  Stephen R. Elville, J.D., LL.M. – Principal


Many of us remember the Hawaii ballistic missile red alert that was issued in January of 2018, the one that fortunately turned out to be a false alarm. How could such a thing happen? How could a drill go so wrong and cause so much damage? Estate planners, CPAs, and financial advisors are asking themselves similar questions right now about the proposed SECURE Act, except that this may not be a drill – it may be the real thing. The SECURE Act may impact your estate planning in a significant way – in particular, estate planning for retirement plan assets. The SECURE Act (House of Representatives’ version – the 10-year plan) recently passed through the House by way of a 417-3 vote. The Senate is proposing a 5-year plan. Although it is unclear which plan will go forward, it is anticipated that one of the two plans will pass in both the House and the Senate and be signed into law by President Trump soon. If this comes to pass, the new law would go into effect for decedents dying after December 31, 2019 (effective in 2020).

Why is the SECURE Act important and what should you do? The SECURE Act will directly impact the length of time IRAs and Qualified Plans can defer income tax and be stretched. Unlike the current law allowing inherited IRAs to be stretched out in accordance with IRS life expectancy rules, the SECURE Act would limit the stretch out of IRAs to either 5 or 10 years, with some exceptions (including spouses, persons with disabilities, and chronically ill persons). And yes, the Act also applies to Roth IRAs. Before I go any further, let me say right here – there is no doubt the SECURE Act is POTENTIALLY TERRIBLE FOR CLIENTS, and many of our clients are already very upset at the prospect of their estate planning being disrupted, along with lifelong plans to leave children, grandchildren, nieces and nephews, or others retirement plan assets over individual life expectancies thwarted. Nonetheless, all we can do is prepare for the coming changes and get ahead of the income tax planning implications. Along these lines, if the SECURE Act becomes law in its current proposed form, you will need to be aware of the following:

(1) Conduit trusts will no longer be a long-term viable asset protection planning tool – with all distributions being forced out to the beneficiary in 5 or 10 years, this technique will be relegated to the shallow end of the pool;

(2) Accumulation trusts will likely become a tool of choice – however, state law is crucial to success and how much income must be distributed out;

(3) Roth conversions will become a main strategy for dealing with the new law;

(4) Charitable remainder trusts and direct charitable gifts will be utilized as powerful strategies for attaining stretch out for certain clients who are charitably inclined;

(5) Traditional notions such as the deceased spouse leaving 100% of their IRA or Qualified Plan to their surviving spouse may change – for example, it may be advantageous for the surviving spouse to disclaim a certain portion to children, while retaining the balance;

(6) Migrating IRA funds into life insurance will become an even more powerful alternative strategy; and

(7) Some clients may utilize the laws of certain states with no state income tax to gain an advantage.

Insurance Policy

I hope this brief but critical information about the proposed SECURE Act is helpful to you. I will be discussing the impact of this potential legislation with clients, helping to make sense of the changes that are likely to come, and advising about any needed planning adjustments. If you would like to speak with a member of our estate planning team about this unprecedented situation, please contact Mary Guay Kramer at mary@elvilleassociates. com or Lainey Olson at Otherwise, we will be sending out further communications about the SECURE Act as things develop.

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