Since the SECURE Act passed in December of 2019, several clients have reached out regarding the so-called “10 Year Rule” which stipulates all retirement assets must be distributed to certain beneficiaries within 10 years of the client’s passing. Many clients who have listed their trusts as beneficiaries are concerned about how this rule impacts their estate plan. For example, some trusts are set up to provide a beneficiary with assets based on a yearly Required Minimum Distribution rule which is no longer in effect. If IRA assets must be distributed within 10 years, this may directly contradict the language in your trust document which distributes assets over a much longer time frame.
In order to address this concern, it is important to first understand how the old rules applied.
Before the passing of the SECURE Act, non-designated beneficiaries (certain ‘non-person’s’ such as trusts or charities) which did not qualify as “See-Through Trusts” (more on this in a moment) were required to distribute retirement funds by the end of the 5th year after the owner’s death. If however, the trust qualified as a See-Through Trust, the trust was treated as a single designated beneficiary and was able to ‘stretch’ the distribution using the oldest applicable trust beneficiary’s life expectancy.