You’ve probably heard of the new Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law late last year. The act created some major changes for anyone with long-term retirement savings, including those who may wish to leave their accounts to beneficiaries with special needs.
Until the act became law Jan. 1, 2020, most beneficiaries of retirement accounts could “stretch” the distributions over their lifetimes. This, of course, led to a lower tax liability year to year, allowing the beneficiary to avoid big withdrawals and grow the inheritance in the tax-deferred account.
The SECURE Act eliminated this stretch provision for most beneficiaries, requiring them to withdraw the assets within 10 years. Fortunately, however, beneficiaries who are disabled or chronically ill are still allowed to stretch distributions over their lifetimes, making this an important consideration for anyone planning for a loved one with special needs.
Using Your Trust to Maximize Retirement Accounts under the SECURE Act
In response to these changes, considering how to designate beneficiaries of retirement accounts is more important than ever. A properly drafted special needs trust can be designated as a beneficiary of a retirement account. Having a special needs trust designated as a beneficiary of a retirement account helps to ensure beneficiaries receive the maximum benefits allowed under the law.
With a properly drafted special needs trust, beneficiaries who meet the conditions for exemption may:
- Stretch retirement account distributions over their lifetime
- Still be eligible for public benefits, including Medicaid and Supplemental
- Security income
- See any potential issues handled by a care manager or advocate
- Have bequeathed assets protected from creditors
What next steps should you take?
If you have a special needs beneficiary and a tax-deferred retirement account, you should review your beneficiary designations and it may be time to set up a consult with a special needs attorney to revisit your plans. The new SECURE Act substantially changes the way retirement accounts are distributed, and utilizing a special needs trust can help ensure your beneficiary receives the greatest value from your retirement funds, while also helping to maintain benefits eligibility. In some cases, existing trusts and estate plans may need to be modified to reflect the new law’s changes.
Speak With an Atlanta Special Needs Lawyer
If you’re the parent or loved one of an individual with special needs, you’ll want help protecting his or her financial future. At Nadler Biernath, we have experience creating and funding trusts. Call us today at 770-999-9799 to schedule your initial consultation to discuss how we can help your loved ones.