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How the SECURE Act will affect estate planning, if it passes

Many New Jersey residents have retirement accounts of some sort, through work or personal choice. On these accounts, they likely have beneficiaries designated so that, when they eventually pass on, someone they know and/or love will benefit from their willingness to save. Recipients have a few options when inheriting such funds. Thanks to the Setting Every Community Up for Retirement Act, those options are likely about to change, which means estate planning for such accounts will likely need to change. 

Under current laws, beneficiaries of retirement accounts can have funds distributed to them slowly over time, or account owners can set up IRA Conduit Trusts to help their heirs avoid excessive taxation. Thanks to the SECURE Act, which recently passed the House and is expected to pass the Senate, these benefits will soon disappear. Now, beneficiaries will have to withdraw the full amount of the fund within a 10-year period -- with a few exceptions. Without beneficiary designations, the fund will be paid out in five years to whomever the court decides is the rightful heir.

Those who wish to place their retirement funds into trusts may still do so, but the beneficiary of the trust has to be what the law defines as a natural person. This is an actual person, not an estate, or charity. Regardless of whether these accounts are placed in trusts or just assigned to specific beneficiaries, the heir's tax burden is possibly going to be much higher under the SECURE Act.

If this bill becomes law, is there any way around it? There may be. New Jersey residents who would like to know what their options are, to ensure their beneficiaries' tax burdens are not significantly increased, can speak to an experienced estate planning attorney, who will be able to adjust current estate plans or create new ones that take these guidelines into account.

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Thomas N. Torzewski, LLC

Torzewski & McInerney, LLC
60 Washington St
Suite 104
Morristown, NJ 07960

Phone: 973-532-2868
Fax: 973-359-0077
Morristown Office Location