Estate Plans with Special Needs Trusts need updating!

The SECURE Act was signed into law on December 20, 2019. Bottom line: if you have a special needs trust as part of your estate plan, your plan needs updating.

You have probably been inundated with information about it, as this is the sort of thing that gives professionals something to write to clients and prospective clients about. Among the changes are an increase from age 70½ to age 72 for traditional IRA required distributions, and repealing the maximum traditional IRA contribution age, currently set at 70½ years old.

But the biggest change is the end of the so-called “stretch IRA” … that is, the ability of your death beneficiaries to take out required minimum distributions from your IRA or Qualified Retirement Plan over your beneficiary’s life expectancy. Effective for persons dying after 2019, with a few exceptions, all distributions now must come out within 10 years of the IRA/Plan owner’s death. (Unlike required minimum distributions, the only requirement is that everything come out by the tenth year after the year of death. Withdrawals need not be made each year. And the five-year rule still applies in certain cases: for example, if you name your estate as your death beneficiary.)

We have been tracking the SECURE Act for over two years now.

When it finally passed the House in May, 2019, by a vote of 417 to 3, it retained life expectancy payouts for certain death beneficiaries: the surviving spouse, children while under age 18, and the disabled and chronically ill.

The intention was good, but there was no exception to the 10-year rule for Special Needs Trusts! A retirement plan paying out into a Special Needs Trust over 10 years, mostly paying federal income-tax rates of 37%, treated our most vulnerable population as though they were the wealthiest of our society.

But advocacy matters!

We submitted a detailed, technical Issues Brief through the Tax Steering Committee of the National Academy of Elder Law Attorneys to the Congressional Joint Committee on Taxation in July of 2019. And they listened! When the revised SECURE Act was presented to the House on December 16, 2019, it had the provisions we needed to protect the life expectancy payout for Special Needs Trusts.

What does this mean for you?

If you have IRAs and Qualified Retirement Plans valued at $100,000 or more, and you have one or more special needs individuals you intend to be beneficiaries of your estate plan, you need to have your plan re-drafted and/or death beneficiary designations re-worked to take the SECURE Act into account.

Most estate plans do not have adequate retirement plan provisions at all, much less where there are special needs trusts. But all plans, even plans created by Special Needs Law Group of Massachusetts, need updates to account for the SECURE Act. We are in process of now of creating the various options and new language necessary for these updates. If you are a SNLG client affected by the SECURE Act, we strongly recommend that you contact our office to update your plan.

Learn more about Special Needs Law Group of Massachusetts here.

This blog post does not constitute legal or tax advice, even if you are presently a client of Special Needs Law Group of Massachusetts, PC, nor is an attorney-client relationship created by reading it. If you want legal or tax advice, you should retain a licensed attorney or tax advisor for that purpose.

Annette Hines, Esq. is the author of Butterflies and Second Chances: A Mom’s Memoir of Love and Loss. She is a powerhouse advocate for the special needs community. Not only has she founded the Special Needs Law Group of Massachusetts, PC, specializing in special needs estate planning, where special needs families compromise 80 percent of the firm’s clients, Hines brings personal experience with special needs to her practice, as the mother of two daughters, one of whom passed away from Mitochondrial disease in November 2013. This deep understanding of special needs fuels her passion for quality special needs planning and drives her dedication to the practice. For more information, please visit, https://specialneedscompanies.com/ and connect with her on Facebook, @SpecialNeedsLawGroup.