Handout: SECURE Act: Estate Planning for IRAs

1 2011-2020 Keebler Tax & Wealth Rights Reserved1 Presented by Robert S. Keebler, CPA/PFS, MST, AEP Keebler & Associates, Planning for IRAs & qualified Plans with an Emphasis on IRAs Payable to Trusts1 The Author wishes to thank Michelle L. Ward, JD LLM for her contribution to this outline 2011-2020 Keebler Tax & Wealth Rights Reserved2 Outline SECURE Act Ten Year Rule Foundation Concepts Stretch Out IRAs 401(a)(9) Regulations Charitable Planning with IRAs IRAs Payable to Trusts Disclaimer Planning Spousal Rollover Trap 2011-2020 Keebler Tax & Wealth Rights Reserved3 SECURE ACTTEN-YEAR RULEEFFECTIVE DATE:January 1st, 2020 2011-2020 Keebler Tax & Wealth Rights Reserved4 SECURE Act.

2 10 Year RuleThe SECURE Act basically, requires all IRAs, Roth IRAs, and qualified Plans to be distributed within 10-years of death. 2011-2020 Keebler Tax & Wealth Rights Reserved5 SECURE Act: 10 Year Rule Post-Death Distributions after the SECURE Act: Non-Designated Beneficiaries Five-Year Rule Ghost Rule Guidance Needed from IRS or Treasury Designated Beneficiaries Te n-Year Rule Eligible Designated Beneficiaries Spouses Life Expectancy Minor Children Life Expectancy (modified) Disabled Beneficiaries Life Expectancy Chronically ill Beneficiaries Life Expectancy Individual not more than ten years younger than employeeIRC 401(a)(9) 2011-2020 Keebler Tax & Wealth Rights Reserved6 SECURE Act.

3 10 Year RuleEligible Designated Beneficiaries Minor Child As described in IRC 409(a)(9)(F) and in the attendant regulations, a child may be treated as having not reached majority if they have not completed a specified course of education and is under the age of 26. If both of the requirements are met, the minor child beneficiary may use the Life Expectancy until 26 years of age. 2011-2020 Keebler Tax & Wealth Rights Reserved7 SECURE Act: 10 Year RuleEligible Designated Beneficiaries Disabled Persons As described in IRC 72(m)(7), an individual shall be considered to be disabled if they are 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.

4 An individual must provide proof of their disability. If an individual is deemed disabled, they are allowed to use the Life Expectancy rule. 2011-2020 Keebler Tax & Wealth Rights Reserved8 SECURE Act: 10 Year RuleEligible Designated Beneficiaries Chronically ill As described in IRC 7702B(c)(2), a chronically ill individual means an individual who has been certified by a licensed health care practitioner as: Being unable to perform at least two activities of daily living for a period of at least 90 days due to loss of functional capacity, Having a level of disability that is to the level of the bullet point described above, or Requiring substantial supervision to protect such individual from threats to health and safety due to cognitive impairment.

5 If an individual is deemed chronically ill, they are allowed to use the Life Expectancy rule. 2011-2020 Keebler Tax & Wealth Rights Reserved9 Responding to the Ten-Year Rule Prior Law Compared to the Ten-Year Rule Beneficiary Options after the SECURE Act Conduit v. Accumulation Trusts after the SECURE Act Solutions to Analyze which may Reduce the Impact of the 10-Year Rule: Multi-generational Spray Trusts Roth Conversions Spousal Rollovers and the NewSpousal Rollover Trap IRAs Payable to CRTs IRA Trusts for State Income Tax Savings Life Insurance Solutions qualified Charitable Contributions Naming a Charity as a Beneficiary 2011-2020 Keebler Tax & Wealth Rights Reserved10 Foundation Concepts 2011-2020 Keebler Tax & Wealth Rights Reserved11 Foundation ConceptsBasics An IRA is either a trust or a custodial account.

6 The trustee or custodian must be a bank or another person who demonstrates, to the satisfaction of the Secretary, that the manner in which they will administer the account will be consistent with the requirements of this Sec. 408(a) & (h) 2011-2020 Keebler Tax & Wealth Rights Reserved12 Foundation ConceptsBasics Federal law which defines and controls IRAs and qualified plans: IRC 408 and 408A IRC 401 Distribution Rules Other Tax Law Income Tax, Estate Tax, GST Private Letter Rulings, Revenue Rulings, etc. Employee Retirement Income Security Act (ERISA) Retirement Equity Act (REA) Bankruptcy Law 2011-2020 Keebler Tax & Wealth Rights Reserved13 Foundation ConceptsBasics State law which may apply to IRAs & qualified plans: Uniform Principal and Income Act (UPIA) Power of attorney Guardianship Intestacy Elective share, community property & divorce Bankruptcy To r tConduit Trust and the Te n-Year Rule:Fiduciary Accounting & Property Law Issues 2011-2020 Keebler Tax & Wealth Rights Reserved14 Foundation ConceptsBasics Wills and the executor control assets of an Estate .

7 Trust instruments and the trustee control assets in trust. Beneficiary designation forms or a default provision of the contract with the custodian or trustee control the disposition of an IRA and a qualified plan. 2011-2020 Keebler Tax & Wealth Rights Reserved15 Foundation Concepts Importance of Planning Maximize use of Unified Credit (where needed) Maximize use of GST Exemption (where needed) Coordinate Estate plan under will or revocable trust Generally, the IRA or qualified plan is the largest asset of the Estate To minimize income tax on distributions and thereby maximize deferral Address SECURE Act changes 2011-2020 Keebler Tax & Wealth Rights Reserved16 Foundation ConceptsDisposition After Death Beneficiary designation form, as opposed to a will, controls the property owner after death.

8 State property law preempted by ERISA or REA. Income tax consequences will vary substantially depending how the beneficiary form is completed. 2011-2020 Keebler Tax & Wealth Rights Reserved17 Foundation ConceptsRetirement Equity Act Retirement Equity Act & Boggs v. Boggs: Plans must offer automatic survivor benefits. Non-employee spouse s community/marital property interest in the plan terminates the non-employee spouse s death. Non-employee spouse does not have the power to name a plan beneficiary. Spousal permission required for the employee spouse to name a non-spousal beneficiary; called a REA 417 and 401(a)(11); Treas.

9 Reg. (a)-20; Boggs, 177 S Ct 1754, 138 L Ed 2d 45 (1997). 2011-2020 Keebler Tax & Wealth Rights Reserved18 Foundation ConceptsDisposition at Death After Divorce Kennedy v. Plan Administrator Ex-spouse gave up her right to the retirement plan, but the decedent did not change the beneficiary form. Holding: The plan administrator is required by ERISA to pay benefits to the ex-spouse per the plan documents. Reasoning:ERISA preempts the marital settlement v. Plan Administrator for DuPont Savings and Investment Plan, 129 S. Ct. 865 (2009). 2011-2020 Keebler Tax & Wealth Rights Reserved19 Foundation ConceptsDisposition at Death After Divorce Egelhoffv.

10 Egelhoff State law purported to automatically revoke a former spouse's status as beneficiary following a divorce. Held: State law that purports to control distributions from an ERISA plan is Egelhoff, 532 US 141 (2001). 2011-2020 Keebler Tax & Wealth Rights Reserved20 Foundation ConceptsReclassification of Retirement Accounts PLR 8929046 A transaction in which a wife transmuted her community property interest in her husband's IRA in return for his community property interest in other assets was not subject to income tax. PLR 199937055 IRS allows IRA to be classified as community property pursuant to a community property agreement.