The fourth day at Heckerling was a mix of technical instruction and soft-skill commentary, along with an update on the new SECURE Act. Highlights of the day include:
The day opened with a presentation by Natalie B. Choate on the SECURE Act, which was enacted in December 2019 and provides the following adjustments to retirement benefits, all effective in 2020:
The stretch IRA for designated beneficiary was eliminated, except in unique areas, by changing life expectancy withdrawal period to 10 years, except for five specific types of beneficiaries — a surviving spouse, a minor child, a disabled or chronically ill participant, or a beneficiary whose age is within 10 years of decedent. The death of first beneficiary will require the next beneficiary to use the new 10 year rule. The 10 year rule doesn’t require annual distributions, just the requirement that 100% be distributed by the tenth year.
Estate as beneficiary still only gets a five year distribution period.
Required Minimum Distributions now do not need to begin until the April 1st following the year the beneficiary turns 72.
IRA contributions can now be made regardless of age.
A charitable exclusion of $100K for direct transfer of IRA distribution to charities is reduced by the amount of post 70 ½ year deduction for IRA contributions.
New retirement plans can now be set up by extended due date of return.
The tax credit for retirement plans set up by small employers has been significantly increased.
Quick takeaways on the new distribution rules include:
If the IRA owner is in a lower tax bracket than his expected beneficiaries (which is especially likely to be the case if the “beneficiary” is going to be a trust that accumulates the IRA distributions), the IRA owner could consider doing Roth conversions during his lifetime, since he can thus absorb the tax hit at a lower rate than will apply to his future beneficiaries
An issue requiring immediate attention— IRAs left to grandchildren will no longer qualify for extended life expectancy distribution. Instead, consider a spousal benefit conduit trust which will get spouse life expectancy followed by the 10 year payout on her death.
In discussing tax planning to avoid or reduce the Generation Skipping Tax in non-exempt GST Trusts, M. Read Moore suggested considering making distributions to non-skip beneficiaries for their use either to make charitable contributions or recontributing to Exempt Trust.
Mary F. Radford presented a compelling presentation regarding elder financial abuse and a call to be diligent in watching out for and educating elder clients with advise such as:
Never give identifying information on phone regardless of caller ID
Never let a stranger in front of your computer
Thomas C. Rogerson, in a discussion of family governance, made a key point about the importance of family meetings to discuss the meanings of wealth as opposed to one-on-one with children for their issues. This process can improve the chances of family fortune making it further than two generations. An interesting observation regarding the “curse of wealth” was that the less financially fortunate learned to be interdependent at an early age because of the need to share limited assets but the rich were independent from an early age. Interdependence is the key to long term preservation of wealth.
A lunch presentation by the South Dakota Trust Company highlighted the liberal fiduciary statues in South Dakota, which provide wide latitude for trust provisions and significant protection for fiduciaries.
Martin M. Shenkman, in discussing tax consequences of Powers of Appointment, pointed out an inconsistency between inclusion of assets in an estate and the ability to use the deferred tax payment mechanism. Section 2041 declares that in one’s estate the value of assets subject to a Power of Appointment held at the time of his death, but Section 6166 (installment payment of tax) measures qualification for deferred payments based on assets held at the moment before death.
In addition, a Special Power of Appointment could be used to decant assets with income sourced to a high tax state out of the trust and into a trust in a low tax state, thereby saving state income taxes.
Robert S. Keebler connected the Section 199A deduction to fiduciary taxation. He pointed out that non-grantor trusts, incomplete gift trusts and ESBTs are entitled to compute and potentially use the 199A deduction. By managing distributions, the 199A deduction can be retained by the trust or passed to the beneficiaries. Charitable Remainder Trusts are not eligible to use the 199A deduction but distributions to the taxable trust recipient will be allocated their proportionate share of all 199A items to use in their own return.
As this year’s program begins to wind down, we look forward to returning to our offices to share these thoughts with our colleagues and clients.