It is early in the year, yet we are already facing a number of past, recent and upcoming changes in the laws that significantly affect estate planning in 2020.
On December 20, 2019, the SECURE Act was signed into law, making significant changes to retirement planning for individuals who die after December 31, 2019. The most dramatic change is the "ten year rule" (or, elimination of the "stretch"). For most beneficiaries (other than surviving spouses, a minor child as beneficiary, a disabled person as beneficiary, a chronically ill individual as beneficiary, and a person who is not more than 10 years younger than the retirement account owner), the retirement assets must be taken within 10 years of the date of death of the owner of the retirement account. Specifically, regardless of whether the beneficiary is a trust or an individual, the entire retirement account must be distributed no later than December 31 of the year that contains the tenth anniversary of the owner's death.
Another notable change introduced by the SECURE Act is that the age at which participants must begin taking distributions has been increased from 70 1/2 to 72 years.
Estate plans and beneficiary designations should be reviewed in light of these and other significant changes introduced by the SECURE Act to ensure that they satisfy the retirement plan owner's objectives, protect beneficiaries, and optimize income tax savings. If you have a retirement plan trust or revocable trust that was previously drafted by our firm, it was carefully designed as a vehicle for inherited benefits under the rules in existence prior to January 1, 2020. It includes many options and provisions that may no longer be appropriate under the new law.
President Trump signed tax reform legislation, generally referred to as the Tax Cuts and Jobs Act (the "Act"), into law on December 22, 2017. The Act was the most sweeping tax legislation to be enacted in decades.
Changes made by the Act include the doubling of the estate tax exemption, which is currently $11.58 million per person. However, this higher amount is temporary and will disappear in 2025 or earlier if the political climate in Washington changes with the 2020 election.
From an estate planning perspective, changes to existing planning needs to be viewed by wealth level:
Smaller estates can and should take advantage of opportunities to maximize income tax basis and avoid future capital gains.
Moderate wealth estates should evaluate whether they should use some of the new exemptions before they either sunset or are changed by a future administration in Washington.
Ultra-high net worth estates should aggressively pursue planning to minimize future estate taxes as the estate tax is not being repealed and a future administration could make the planning environment much less friendly.
All wealth levels should review existing estate planning documents because the Act may make how assets are allocated, tax planning clauses, and more obsolete, or in some instances destructive to planning goals.
Please understand that this post is merely an overview of some of the past, recent and anticipated changes in legislation that may affect your planning.
If we can be of any assistance, or if you would like to schedule a meeting to review changes to your estate planning that might be worth making, please contact us at firstname.lastname@example.org.