Retirement Rewind: Estate Planning Strategies to Preserve IRAs with John Ross, Ep #171

Dec 21, 2020

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Welcome to this episode of our Retirement Rewind. Retirement Rewind episodes are so informative that we decided to play them again while I take the month of December to spend a bit more time to enjoy my family.

Estate planning attorney, John Ross from the Big Picture Retirement podcast, joins me to discuss how you can preserve your IRAs for your heirs in the wake of the SECURE Act. Check out this interview to discover how to optimize legacy tax planning, how to utilize an accumulation trust, and learn about the charitable remainder trust.

Outline of This Episode

[1:22] How has the loss of the stretch IRA changed estate planning?
[4:06] An accumulation trust may be the key to planning your estate
[6:44] A new opportunity for state income tax planning
[9:22] How to turn a 10-year stretch into a 20-year stretch
[16:32] A case study
[18:44] You may want to consider a charitable remainder trust

How has estate planning changed with the elimination of the stretch IRA?

The SECURE Act brought about huge changes to estate planning when it effectively killed the stretch IRA. The stretch IRA provided the opportunity for people to name their spouse as a primary beneficiary and their children as secondary beneficiaries.

Upon inheritance, the IRA could be sent into a conduit trust and the RMDs were sent directly to the beneficiary. Those RMDs were based on the life expectancy of the beneficiary. One benefit of this trust was that it was doled out over a lifetime, another is that the IRA was preserved and protected from creditors. With the SECURE Act in place the conduit trust will no longer set the standard.

What will replace the conduit trust?

Now that the conduit trust is defunct, how should people plan their estate? An accumulation trust may be the key. Inheritors can no longer withdraw those IRA funds over the course of their lifetime. They now have only 10 years to draw on the IRA.

In those 10 years a lot can happen. If your inheritor gets sued, divorced, or has problems with creditors then the IRA is at risk of disappearing. One solution to this problem is to set up an accumulation trust.

You may want to rethink your beneficiaries

Now that the long-term stretch IRA is gone we need to rethink legacy planning. You may be thinking that 10 years is too short of a window for your inheritors. However, there is a way to stretch that 10-year window into 20. You could stretch these funds into 20 years by leaving your spouse half of your IRA and your kids the other half. Find out how this could work by listening to this interview with Johnn Ross.

Now is the time to review your estate plan

Instead of thinking of this change in the law as an inconvenience, take the opportunity to review and update your estate plan. Many people set up their estate plan and then never revise it, but a lot can change over the years. When was the last time you reviewed your estate plan?