LEGAL EXPERTISE
When planning for the future care of a loved one, it is important to consider the individual’s special needs and any available government assistance programs in order to supplement such programs and enhance the individual’s quality of life through a tax advantaged estate plan.
The SECURE Act (signed into law on December 20, 2019), which significantly changed the required minimum distribution rules for qualified retirement plans including IRAs, changed the way in which we plan for retirement assets.
The IRS issued proposed regulations on February 23, 2022, to primarily address changes made by the SECURE Act. The SECURE Act and the proposed regulations strengthen the tax advantages afforded to supplemental needs trusts that inherit retirement assets.
Recall that pre-SECURE, the beneficiary of an inherited IRA could stretch the required minimum distributions over a life expectancy, resulting in increased benefits through tax-free growth and lower tax brackets.
Post-SECURE, a beneficiary is only eligible for a lifetime payout if the designated beneficiary is either the surviving spouse of the employee, a minor child of the employee, disabled, chronically ill, or an individual who is not more than 10 years younger than the employee.
The
SECURE Act and the proposed regulations provide additional guidance in
determining an eligible designated beneficiary’s status on the basis
that the beneficiary is disabled or chronically ill, and the
documentation required. Oftentimes when benefiting an individual with
special needs, it is important to utilize a supplemental needs trust in
order to avoid adversely affecting the individual’s financial
eligibility for vital government assistance programs.
For
this reason, SECURE created two specific types of trusts referred to as
applicable multi-beneficiary trusts, which allow individuals who are
disabled or chronically ill to benefit under supplemental needs trusts
while still qualifying for the lifetime payout.
If
the projected required minimum distributions would be adequate to
provide for and enhance the quality of life of a loved one who has
special needs, designating a supplemental needs trust as the beneficiary
of a qualified retirement plan is an advantageous planning technique.
Whitney Gagnon, a director in McLane Middleton’s Trusts & Estates Department, can be reached at 603-334-6927 or whitney.gagnon@mclane.com.
Whitney A. Gagnon
900 Elm Street, Manchester, NH 603-625-6464 www.mclane.com
