How the SECURE Act impacts your plan for your retirement accounts. It is a good time to review.
The passage of the SECURE Act left many wondering if their estate planning documents need to be
Generally, we do not need to revise your trusts to comply with SECURE. It is important to understand
that trust rules did not change. If you included conduit trusts for your beneficiaries, they will still work
as intended, as conduit trusts. If you included a see-through accumulation trusts, they will also still work
as intended, as accumulation trusts.
The 10-Year Rule Basics
The problem introduced by SECURE is that the stretch-IRA and the income tax benefits of distributions
over the life expectancy of the beneficiary are mostly gone and replaced by a requirement that the
entire IRA will have to be paid out within 10 years of your death. There are five situations where the 10-
year rule does not apply; (1) when the plan has no designated beneficiary and the plan participant dies
after the required beginning date for distributions, since the plan continues to pay over the remaining
life expectancy of the deceased plan participant, and (2-5) there are four categories of beneficiaries who
are still eligible to withdraw their inherited interest in the form of minimum required distributions over
their expected lifetime. The eligible groups of beneficiaries are (i) minor children through majority (see
discussion below), (ii) chronically ill or disabled beneficiaries, (iii) persons not more than 10 years
younger than the plan participant, and (iv) spouses named as sole beneficiaries of a trust. Spouses
named directly as beneficiaries can still roll their interest over.
For a conduit trust beneficiary, who does not fall within one of the 4 eligible categories, the 10-year rule
means the beneficiary’s entire share of the inherited IRA has to be distributed to the beneficiary within
10 years. Since the 10 year period will include months of 11 tax years, the income tax impact of
distributions can be spread over 11 tax years. The rate at which distributions are taken is up to the
trustee of the trust.
For accumulation trust beneficiaries, who does not fall within one of the four eligible categories, that
means the distributions have to be made to their trusts by the end of the 10 years, over 11 tax years,
and the trustee decides at what rate to withdraw.
We see that the SECURE Act changed the income tax reward of a life-expectancy based payout.
Children and the 10-Year Rule
A minor child beneficiary falls within one of the exceptions to the 10-year rule and the child’s life
expectancy will be used to calculate payouts until the child “attains majority”. At that time, the payouts
switch to the 10-year rule. There is a lot of confusion about what “majority” means. Until we get clear
guidance from the Treasury, the assumption is that it means age 26, as long as the child is a student.
Thus, your child’s share of your IRA will be fully distributed to your child by age 36.
Note that this rule only applies to your minor child. It does not apply to other minors, such as nieces,
nephews, or grandchildren. Also note that for a disabled child, life expectancy payouts continue as long
as the disability lasts.
If the thought of your child having control over their entire share of your IRA by age 36 is a concern, you
could remove the conduit trust provisions for your child’s trust and convert it to an accumulation trust.
Additional updates to your revocable trust could allow your Trust Protector to convert a conduit trust to
an accumulation trust at the time of your death, if circumstances should have changed for your child by
An adult child will receive the payout from the IRA within 10 years of the participant’s death. A conduit
trust for an adult child could be replaced with an accumulation trust, if you wish to keep the
distributions in the child’s legacy trust for asset protection purposes and income taxation at the trust’s
income tax bracket is not a concern. Recall that trusts have compressed marginal tax brackets.
Currently, a trust pays 37% for income above $12,700. If your child is a high earner, the distributions
would be taxed at 37% whether they would be distributed outright to your child or kept in the trust. In
such cases, the benefits of asset protection may weigh in favor of replacing a conduit trust with an
Talk to Your Estate Planning Attorney Today
This is a time to review your estate plan. We offer free initial consultations for new clients and free
reviews to our existing clients.