SECURE Act: 6 Updates and Why They Matter
Retirement assets are often the largest—and commonly the most challenging—piece of an estate plan.
In case you missed it, this summary of your “SECURE Act: Terminology and Planning” on-demand seminar features well-known Michigan practitioner Amy N. Morrissey and highlights some of the key takeaways for navigating this continually confusing landscape.
1. RMD Age: Know the Applicable Age
What you need to know now: SECURE 2.0 changed the fixed age for commencing required minimum distributions (RMD) to an applicable age. The SECURE Act first increased the age for commencing RMDs from 70½ to 72, and SECURE 2.0 further increased the age to 73 (starting 2023) and 75 (starting 2033). In practice, look for the client’s applicable age to determine when RMDs must begin.
2. RBD + 10-Year Rule
What you need to know now: The required beginning date (RBD) generally remains April 1 of the year after the account owner reaches the applicable age. For general designated beneficiaries of account owners who die on or after their RBD and are subject to the 10-year rule, the “at least as rapidly” rule still applies under the final regulations. This means that RMDs are required during years 1 through 9 of the 10-year period and the entire balance must be fully distributed by the end of year 10.
3. EDBs: Who Can Still Use Pre-SECURE Act Stretch
What you need to know now: The SECURE Act created new special classes of designated beneficiaries called eligible designated beneficiaries (EDB). EDB are allowed to use the pre-SECURE stretch rules for stretching over life expectancy. The most common EDBs include:
• Surviving spouse
• Minor child of the account owner (to age 31)
• Disabled or chronically ill individuals
• Individual who is no more than 10 years younger than the account owner
4. EDBs: See-Through Trust Rules Still Apply
What you need to know now: To achieve designated beneficiary or EDB status, a trust that is designated beneficiary of a retirement account must be a see-through trust. The see-through trust rules still apply, meaning that:
• the trust must be valid under state law,
• the trust must be irrevocable at the death of the account owner,
• a copy of the trust must be supplied to the administrator of an employer-sponsored plan (but not of an IRA) by October 31 of the year following the account owner’s death (if the beneficiary is chronically ill or disabled, this is also the deadline for documentation), and
• the beneficiaries must be identifiable.
5. Conduit Trust Versus Accumulation Trust: Understand the Difference
What you need to know now: A conduit trust is a conduit for the payment of the retirement benefits. It is a see-through trust from which all distributions from the retirement plan to the trustee, including RMDs and other withdrawals, will pass through to the trust beneficiary. An accumulation trust is any see-through trust that is not a conduit trust. A conduit trust is the only type of trust that will allow a surviving spouse beneficiary to be an EDB.
6. AMBTs: Getting Disability Planning Right
What you need to know now: Discretionary special needs planning for chronically ill and disabled beneficiaries may allow for a stretched payments by employing an applicable multi-beneficiary trust (AMBT). An AMBT is a trust in which:
• there is more than one trust beneficiary, all of whom are designated beneficiaries (however a qualified charity may be a remainder beneficiary)
• at least one of the designated beneficiaries is an EDB due to being chronically ill or disabled and
• the chronically ill or disabled beneficiaries are the only individuals who can receive distributions during the lifetime of the chronically ill or disabled beneficiaries
7. Separate Account Status for Trust Beneficiaries
What you need to know now: For purposes of determining designated beneficiary status and RMD computation, separate account status may now be achieved for each designated beneficiary of a see-through trust provided the following conditions are met:
• the (administrative) trust must terminate
• the separate interests of the trust beneficiaries must be allocated to separate shares or subtrusts immediately and
• there cannot be any discretion in the trustee as to the allocation of account proceeds among the various beneficiary shares
Final Thoughts
When SECURE 2.0 issues come up, the consequences can be big and expensive. Reviewing the Act carefully, documenting deadlines, and identifying beneficiary status correctly all help prevent accelerated payouts, missed distribution obligations, and unintended tax results. Smart planning (and administration) means treating retirement assets as a specialized track, not a routine checkbox.
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This summary of ICLE resources was created with the assistance of AI.