At the end of 2019, new laws arose that may affect people who have traditional IRAs. These regulations happened relatively quickly, but many with estate plans and trusts took notice.
Specifically, the rules and language governing what happens to IRA accounts after they are inherited have been updated. Though not everyone with an IRA needs to revise their estate plan documents, all IRA holders should be aware of the legal updates and potential ramifications.
A popular way to help defray and reduce IRA-related taxes, as well as shield the assets from creditors and ex-spouses, has been to deliver the assets in small amounts post-inheritance. This approach enables the recipient to receive benefits over time, including over the course of the beneficiary’s life. For instance, a beneficiary could expect a predictable amount of income from the IRA benefits. The beneficiary could then designate where to put that income over a lifetime, such as into another tax-deferred vehicle.
Now, the laws constrict the IRA delivery time to no more than 10 years with a few exceptions. The 10 years begins when the original IRA holder passes away. The only exceptions to the 10-year rule are spouses and disabled beneficiaries. Minor children who become beneficiaries have a little more time; they do not have to take the full IRA benefits until a decade after turning 18 years old.
Due to the changes of IRA rules, people should review their papers if they previously worked with estate attorneys to construct conduit trusts. A conduit trust, sometimes called a see-through trust, enables all the IRA distributions to pass immediately from trustee to beneficiary at the time of the IRA holder’s death.
The trustee could send assets at designated times to the beneficiary for life. However, the new 10-year cap on beneficiary asset receipts could make a conduit trust less attractive for some IRA policyholders who counted on their beneficiaries to obtain little money at a time.
Some IRA holders with estate plans may not find these changes too worrisome. For instance, an IRA holder with a small amount of assets might not have anticipated stretching out the delivery of assets to beneficiaries. On the other hand, people who have significant amounts of money in their IRAs or want to protect beneficiaries from inheritance problems with a revised trust could be more impacted.
An estate lawyer’s main goal should be to protect and preserve the client’s estate in the best way possible for the current IRA holder and any designated beneficiaries of the IRA asset distributions. Even if an individual is certain the new IRA regulations will not affect an existing estate plan or trust, the individual may want to get a second opinion. Life changes, such as remarriage, divorce, or beneficiary health concerns, could make altering some estate plan documents essential.
If you have concerns about current wills, trusts, and estates, our dedicated lawyers will assist you with your needs. Our experienced Media estate lawyers at Eckell, Sparks, Levy, Auerbach, Monte, Sloane, Matthews & Auslander, P.C. will help you with the new IRA beneficiary changes and any other concerns you may have. Contact us online or call us at 610-565-3701 for a free consultation about your case. Located in Media and West Chester, Pennsylvania, we also serve clients in Delaware County, Chester County, and Montgomery County.
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We want to assure everyone that during this unprecedented and difficult time, we are still operating and will continue to meet all the legal needs of the residents of the Delaware Valley. While the Governor’s recent orders have restricted the operations of some businesses, Eckell Sparks has deployed a variety of applications and hardware that allows both our attorneys and our support staff to confer with clients remotely, provide consultations to those seeking legal advice, and continue to provide the high level of legal services to our clients as we have always done. For more than 50 years, our Firm has been a force in the Delaware Valley legal community. And by now also leveraging technology, we will continue to do so both during, and after, the current public health emergency.
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