The SECURE Act – What Does It Mean to My Estate Plan?

by Andy Gutwein

A traditional IRA allows money to grow tax deferred (not tax free).  But, eventually, when that money is withdrawn from the IRA, it is subject to income tax.  IRAs are subject to required minimum distributions. The SECURE Act changed the minimum distribution requirements for inherited IRAs. 

Historically, one could spread out the distributions of the inherited IRA over their own lifetime. After the SECURE Act, a non-spouse who inherits an IRA must withdraw the entire amount within 10 years. Exceptions to the 10-year rule are minor children, disabled or chronically ill individuals, and beneficiaries less than 10 years younger than the decedent.

So, how does this impact your estate plan? Some plans will generally still work – like a plan where your children are named as direct beneficiaries or a plan with a qualifying trust that pays out to kids shortly after your death. But, plans that leave assets in trust for a term longer than 10 years need to be examined closely. 

If your plan was to leave your IRA money in a qualifying trust and have it pay out to your adult children over their lifetime, then the SECURE Act just threw a wrench in that plan. If the trustee does not have the ability to pay out the entire balance to the beneficiaries over the 10-year period, then the proceeds would be taxed at the compressed trust tax rates and essentially be subject to a 37% federal income tax.

There are a few ways to address this situation:

  1. The trust could be modified to allow the Trustee to pay out the benefits as they are withdrawn from the IRA. The benefits would then be taxed as income at the beneficiary’s tax rate rather than the compressed trust tax rates.
  2. The IRA could be converted to a Roth IRA which would result in you paying income tax now at your current income level, and then no income tax would be due in the future when the money is withdrawn.
  3. The IRA could be left to a Charitable Remainder Trust where a charity receives the IRA but an annuity is paid to an individual for a period of time or their lifetime. This option is the most complicated and will generally only be appealing if you have some underlying charitable interests.

The short answer? You should review your estate plan documents to determine how long an IRA would be in trust after you pass. If short term, you’re probably fine and the only impact of the SECURE Act will be more rapid required withdrawals by the beneficiaries (and likely higher income taxes as a result). If longer term, you will want to make sure you fully analyze the impact on your plan and determine if some updates should be made to mitigate the impact of the new law.  It is important that your legal, financial, and tax advisors all coordinate efforts and work with the same objectives in mind.

Have questions about how the SECURE Act affects your estate plan? Give me a call at 765.423.7900 or shoot me an email at I'd be more than happy to help.