February 26, 2020

The SECURE ACT was passed by Congress and signed into law by the President on  December 20th,  2019, with an effective date of January 1, 2020.  The act makes significant changes to all retirement plan benefits, like 401ks, 403bs, all IRAs and all other retirement plans.  For the curious, the SECURE ACT stands for “The Setting Every Community Up for Retirement Enhancement Act. The SECURE ACT is a cynical name for a new law that decreases family wealth.  While the act does help you save more for yourself while you are alive, it decimates your retirement plan savings after your death by subjecting it to rapid taxation, subject to limited exceptions.  You may be wondering if this new law affects you?  The answer is yes!  I will explain these pre-death and post-death changes below.  It is now time for you to look at all your retirement plans and determine if changes are needed to your overall estate plan, and if so, call for a consultation.


The most important pre-death changes are designed to allow you to both keep more and put more in your retirement plans.  First, you can keep more money in your retirement plans because the starting date for “Required Minimum Distributions” (RMDs) is now April 1st following your 72nd birthday.  No longer 70 ½.  This applies to all born on or after July 1st, 1949.  Anyone born before that date would have reached 70 ½ before 1/1/2020 and must follow the old rules.  Anyone born after that date will operate under the new rules, meaning the earliest start date would be April 1st, 2022.

Secondly, you can put more money in your IRAs because all workers may now contribute to an IRA in or after the year they reach 70 ½, similar to the way 401ks and 403bs work. .  Prior law had capped contributions at that age for IRAs.

Thirdly, the SECURE Act now permits withdrawals of up to $5,000 from IRAs and certain other plans to pay expenses for the birth or adoption of a child. Under prior law, such a withdrawal could have been subjected to a 10% penalty, but no longer.  The withdrawal must be made during the one-year period beginning on the date on which a child of the individual is born or on which the legal adoption by the individual of an eligible adoptee is finalized. An adopted child is one who has not attained age 18 or who is physically or mentally incapable of self-support.  Note that while the withdrawal is not subject to the 10% penalty, it is still subject to income tax.


The SECURE ACT dramatically changes many of your estate plans by changing the way your retirement benefits are taxed after your death.  The crux of the change, subject to exceptions for five types of ” eligible designated beneficiaries,” or “EDBs” (defined below) is that your “designated beneficiary” or “DB” (defined below) can no longer withdraw required minimum distributions (RMDs) over their life expectancy (called a “stretch IRA”), but rather must withdraw the entire amount by the last day of the tenth year following your death. This applies to all retirement plans, including all IRAs (including Roth), 401ks, 403bs and the like.
Here is what you need to know:

FIRST: The “STRETCH IRA” is mostly gone!  The old law ( pre SECURE ACT) provided that if you left your retirement plan to a DB (explained below), then your beneficiary could keep the inheritance in an “inherited IRA” and take out RMDs over their life expectancy, thereby stretching out the distributions (and the tax on those distributions) for many more years, the younger the beneficiary, the longer the stretch.   The new law provides that all DBs must withdraw retirement plan money (and pay tax) by December 31st following the tenth year of your death.  Note that this could be close to 11 years.  For example, if you died on January 1, 2020, the end of the 10th year would not be January 1st 2030 but December 31st 2030.  This is a huge increase in taxes and a blow to passing on a secure future for your children.  Note that the distributions do not have to be pro rata each year; your beneficiary has full control over the timing of these distributions over the 10 year period.

SECOND:  The old and new law remain the same if you do not name a DB.   If there is no DB, then your plan must be distributed within 5 years of your death (if you died prior to your required beginning date) or otherwise over the balance of your life expectancy if you had lived.   A DB is essentially all individuals and certain trusts called “see-through trusts.” (Discussed below).  You will not have a DB if you name your estate, a charity or a non “see-through trust” as beneficiary.   You may wish to avoid having a DB because the life expectancy of a person between the ages of 72 and 80 exceeds 10 years.  Therefore a non “see-through trust” may be something you wish to discuss with us.

THIRD: Who is considered a “designated beneficiary or DB?”  In its simplest terms, a DB is either an identifiable individual or what is called a “SEE THROUGH TRUST,”  whose beneficiaries are all DBs and which follow some other rules (see appendix).  See-Through Trusts come in two forms: (i) a “conduit trust”, where all RMDs and any additional distributions must be paid out to one individual annually or (ii) an “accumulation trust”, where all RMDs can remain in the trust for future distribution by the trustee to named individuals. Remember, a See-Through Trust can not name a charity or an estate as beneficiary; if it did it would not be considered a DB.

Under the pre-Secure law, with a conduit trust, RMDs were paid out over the life expectancy of one individual beneficiary and with an accumulation trust, RMDs were paid out over the life expectancy of the oldest trust beneficiary.

Under the new Secure Act, subject to limited exceptions described below, all DBs, including all conduit and accumulation trusts, must now follow the new 10-year distribution rules.

FOURTH:   If your current plan contains a conduit trust, by its terms, the entire retirement plan must now be paid out from the trust to the trust beneficiary within 10 years instead of over the lifetime of the beneficiary. Is this what you want?  If not, you should change your plan immediately.

FIFTH:   If your current plan contains an “accumulation trust,” you may need to immediately change your plan because the trust will have to withdraw all the money in the plan within 10 years of your death and thus be taxed on all that money. Note that here the money is not paid out to the trust beneficiary, but retained in the trust for later distribution.  Unlike a conduit trust where the beneficiary is taxed on the distribution, with an accumulation trust, the trust itself is taxed.  The problem here is that trusts are by far in the highest tax bracket and a better tax result may be achieved by rethinking your plan.  Individuals are in the highest tax brackets when they have very high incomes  (In 2020, 35%  for incomes over $207,350 and $414,700 for married couples filing jointly; and 37% for taxpayers with incomes greater than $518,400, $622,050 for married couples filing jointly).  In contrast, accumulation trusts are taxed at  35% if taxable income is over $9,450 but not over $12,950 and 37% for all income over $12,950.   In other words, if you name an accumulation trust as beneficiary, the tax problems of this new Secure Act will be magnified.   Between federal and state income taxes, close 45% of your retirement plan will disappear.

SIXTH:   The SECURE ACT did create some exceptions to this harsh new tax landscape by creating a new category of beneficiary called “ELIGIBLE DESIGNATED BENEFICIARIES” or “EDBs”  EDBs still get the stretch, but at their death, the next beneficiary must withdraw all plan money within 10 years.   If you have a EDB in your family, you may wish to alter your estate plan to maximize the stretch through them.

SEVENTH: So who are the EDBs?  The EDBs are your spouse, your minor child, any person who is disabled or chronically ill, and any person who is less than 10 years younger than you.   An EDB is also a conduit trust whose sole lifetime beneficiary is an individual EDB and an accumulation trust provided the lifetime beneficiary(ies) are all disabled or chronically ill EDBs.  Sound confusing?  I will explain each of the categories below.

EIGHTH:   The spouse is an EDB.  If your spouse is your designated beneficiary, they alone, under the old and new law, can rollover your retirement plan and treat it as their own.  If they choose not to roll it over (for whatever reason) or they are the sole lifetime beneficiary of a conduit trust, then they can take RMDs over their life expectancy, starting at the later of your death or the end of the year you would have reached the age of 72.  Upon the spouse’s death, the next beneficiary must follow the new 10-year distribution rule.

Often in second marriage situations, there are reasons why we do not want to allow the spouse to control the retirement plan, so it is placed in a trust to preserve it for your children. The trust must be a conduit trust to capture her life expectancy, but that could mean that almost all of the plan will be paid out to the spouse if they live long enough.   If you wish to preserve more for your children, then you still can make it an accumulation trust but you will have to accept the 10-year payout and higher trust income taxes.

Also, note a change in strategy from the pre-SECURE ACT world: we used to recommend naming the children rather than the spouse as beneficiary, to capture their longer life expectancy.  Of course, this is no longer true if the spouse’s life expectancy is greater than 10 years.  Naming a spouse as the primary beneficiary of your IRAs instead of a non-spouse will allow them to continue tax-favored growth without having to follow the aggressive 10-year timeline for withdrawals.

NINTH:   Your minor child is an EDB or a conduit trust for their sole lifetime benefit, and they remain an EDB until they reach the age of “majority” in their state.  In New York,  the age of majority is 18 (it may be up to 21 in other states).  However, the age of majority apparently can be exceeded if the child has not completed a “specified course of education” and is under the age of 26.  Once your child reaches the age of majority, the ability to stretch out minimum distributions over their life expectancy ceases and converts to a 10-year payout. It is possible, that the age of majority can be postponed if the child becomes disabled, but we are waiting for clarification on this point.

Most people with minor children name an accumulation trust as beneficiary for all of their asserts until their child reaches a certain age. like 25 or 30 or 35.  However, under the new law these trusts will be forced into a harsh 10-year payout at high trust income tax rates.  Only a conduit trust will stretch out the RMDs over a longer period of time, but then the children will receive trust distributions earlier than intended.  Hard choices have to be made with future planning.

TENTH:   A disabled or chronically ill person is an EDB.  Furthermore, this is the only EDB category that allows both a conduit and an accumulation trust to qualify as an EDB.  The accumulation trust will most likely be what is called a SPECIAL NEEDS TRUST. Note that the disabled or chronically ill person does not have to be your child, it can be anyone.

DISABLED: An individual shall be considered to be disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration.   Essentially, if someone is eligible or would be eligible if they applied for Social Security Disability Income benefits, then this EDB exception applies.

CHRONICALLY ILL: An individual shall be considered to be chronically ill if they have been certified by a licensed health care practitioner as:
i) being unable to perform at least two activities of daily living for a period of a least 90 days due to loss of functional capacity or
ii) requiring substantial supervision to protect such individual from threats to health and safety due to cognitive impairment.

As with other categories of EDBs, at the death of the disabled or chronically ill EDB, the 10-year payout must commence.

As I stated above, an accumulation trust will still be an EDB even though the disabled or chronically ill person is not the sole beneficiary of the trust.  The Secure Act calls these “applicable multi-beneficiary trusts,” and defines them as a trust that 1) has more than one beneficiary and 2) all such beneficiaries are DBs, and 3) at least one beneficiary is disabled or chronically ill.

If the trust passes this test, then it receives some leniency not normally allowed.  For instance, if a retirement plan named a trust as beneficiary and then immediately split into separate trusts for several beneficiaries, the old law required RMDs to be based upon the life expectancy of the oldest beneficiary of the trust before it was split; under the new law that would be 10 years across the board, even if paid to sub trusts for other EDBs.  Under the Secure Act, it is now permitted, if provided by the trust,  to divide the applicable multi-beneficiary trust into separate sub-trusts and at least the one sub-trust for the disabled or chronically ill person will be allowed to take RMDs based upon the life expectancy of such person (even if the trust has another beneficiary after their death).  We are not certain at this time as to whether other sub trusts created at such time for other EDBs, will get them same stretch treatment.  For now we are assuming they will not and we await regulations for clarity.

Frankly, the new law regarding multi beneficiary trusts is unclear and we are waiting for new regulations to help explain it.  The best practice is to create separate trusts for all EDBs and have the retirement plan beneficiary designation pay directly to such separate trust.

ELEVENTH:   The last category of EDB is any person who is no more than 10 years younger than you, or a conduit trust for their benefit.   At the death of this person, the 10 year payout rule applies.  This will most often apply to siblings and significant others.


FIRST: You should maximize the use of your EDBs by directing your retirement plans to be paid to them upon your death or to a conduit trust for their benefit. If you have a beneficiary who is disabled or chronically ill, you can direct your retirement plan to an accumulation special needs trust.   Also, if you have a beneficiary that is borderline disabled or chronically ill, you may want to do the paperwork in advance to get then qualified for SSDI.

SECOND:     You should look to direct your retirement plans to Designated Beneficiaries who are in the lowest tax brackets.

THIRD:     You should decide if the use of a trust makes sense in light of the high trust income tax and/or direct other non retirement funds to such trusts.

FOURTH: If you are in a lower tax bracket than your children, spend your retirement assets while you are living.

FIFTH:   Think about converting your retirement plan to a Roth IRA.  If you are thinking about this, you should consider your current tax bracket as well as your beneficiary’s. If you think your beneficiary will be in a higher tax bracket than you are now (for example, your children in their prime working years), then it may make sense to convert your traditional IRA to a Roth now and pay the tax at your lower rate (as opposed to your children taking distributions after your death at their higher tax rate). Of course, it is important to factor in the impact that paying a large tax bill today can have on your own retirement. The last thing you want is for your estate planning efforts to put your own retirement plans in jeopardy.

SIXTH:     If you are charitably inclined, you can withdraw up to $100,000 a year from your retirement plans, tax free, to make your charitable contributions.  A quirk in the Secure Act reduces your $100,000 by any amount you contribute to a retirement account in the same year.
Moreover, if you are charitably inclined you can name a charitable remainder trust (CRT) as your beneficiary.   Such a trust receives the retirement monies tax free and pays out an annuity to your children (or other beneficiaries) for life.  At the death of the beneficiaries, the balance goes to charity.

SEVENTH:    Lastly, you may wish to purchase a life insurance policy to replace the assets that will be consumed by the tax.   Again, if you do not need all the money in your plans for your own retirement, it may make sense to use your RMDs to pay the premiums on a life insurance policy so that your children will receive the insurance proceeds tax free.




In order to be treated as a “see-through trust” and qualify as a designated beneficiary, the trust must meet four very specific requirements:

1) The trust must be a valid trust under state law. This requirement is rather straightforward – the trust must be legally formed under state law. Generally, this just means the trust has been properly signed and executed as a trust (witnessed, notarized, etc., as required under state law), and does not contain any provisions that would outright invalidate the trust under state law. For virtually any trust drafted by a competent attorney that was legally signed and executed in the first place, this requirement should be a non-issue.

2) The trust must be irrevocable, or by its terms become irrevocable upon the death of the original IRA owner. A revocable living trust that becomes irrevocable upon the death of the owner should qualify under this provision, as would any irrevocable trust that was simply drafted to be irrevocable from the moment it was executed.   The trust could also be a testamentary trust created under a Will that doesn’t even come into existence as an (irrevocable) trust until the death of the IRA owner.

3) The trust’s underlying beneficiaries must [all] be identifiable as being eligible to be designated beneficiaries themselves. The trust beneficiaries should either be identified by name, or identified as members of a “class” of beneficiaries that could be identifiable when the time comes (e.g., “my children” or “my grandchildren” would be fine, but “whoever my trustee decides to make distributions to” would not).   They must be living, breathing human beings; if a charity or some other non-living entity is a trust beneficiary, then the trust will not be considered a “DB” because not all the underlying beneficiaries will have a life expectancy.

4) A copy of “trust documentation” must be provided to the IRA custodian by October 31st of the year following the year of the IRA owner’s death.   In fact, the IRA custodian must be provided with either a final list of all trust beneficiaries as of the September-30th-of-year-after-death beneficiary determination date (including contingent and remainder beneficiaries and the conditions under which they would be entitled to payments) along with a certification by the trustee that all of the requirements for stretch distribution are met under the trust, or the trustee can simply provide a copy of the actual (irrevocable) trust document itself to the IRA custodian. Notably, while this is a purely administrative requirement, it is a requirement and does have a concrete deadline of October 31st of the year after death that must not be missed.

If the four requirements listed above are met, a trust as IRA beneficiary can qualify as a designated beneficiary.