In December 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act, a bipartisan retirement bill passed that includes many bi-partisan reforms that increase access to workplace plans and expand retirement savings. The retirement legislation expands opportunities for individuals to increase their retirement and estate planning plans, including policy changes on defined contribution (DC) plans, defined benefit (DB) plans, individual retirement accounts (IRAs) and 529 plans.

Estate Planning with IRA Trusts for Minors

IRA accounts or employer sponsored retirement plans, such as a 401(k) are generally considered non-probate assets (not normally covered by a will) but instead are passed directly to a beneficiary according to the beneficiary designation forms that are completed upon account opening. When the intended beneficiary is a minor, IRA monies generally cannot be inherited outright, so individuals frequently pick between naming a custodian for a child who would inherit the IRA, or alternatively, by creating a trust for the benefit of the minor, where the trust is the beneficiary of the IRA.

IRA Protection Trusts and Stretch Trusts

For individuals who opt for the latter and name a trust as the beneficiary of an IRA, a frequent estate planning strategy for individuals who do not need the IRA balances for their own retirement but want to contribute the balance to set up a long-term tax-advantaged strategy for their heirs is to set up an IRA Protection Trust or IRA Stretch Trust.

Generally, an IRA Protection Trust or IRA Stretch Trust enables the trust to take advantage of favorable IRS minimum-distribution rules by “stretching out” the payments of those monies over a beneficiary’s lifetime while also protecting the money from spendthrifts, creditors and even divorce.

Impact on Long-Term Estate Planning

Before the SECURE Act, the required minimum distribution (RMD) rules allowed non-spouse beneficiaries to gradually draw down an IRA inherited from, e.g., a grandparent, over the beneficiary’s IRS-defined life expectancy. However, the SECURE Act now requires most non-spouse IRA and retirement plan beneficiaries to drain inherited accounts within 10 years after the account owner’s death.

This can mean big changes for individuals who have set up estate plans that include tax-advantaged IRA Protection Trusts.

Depending on how an IRA Protection Trust is structured and who the beneficiary is, stricter rules under the SECURE Act for post-death required minimum distributions may limit the benefits of such tax-advantaged estate plans.

The tax-advantaged estate strategy may require changes to an estate plan for relatives other than parents who leave IRA Trusts to minors. For individuals who inherit an IRA from an account owner who passes away after December 31, 2019, fewer beneficiaries will be able to extend distributions from the inherited IRA over the course of their lifetime. Instead, many beneficiaries will now need to withdraw all IRA monies within 10 years following the death of the original IRA account holder. The SECURE Act does maintain certain exceptions to the 10-year distribution requirement, e.g., for assets left to a surviving spouse, minor children, a disabled or chronically ill individual, and beneficiaries who are less than 10 years younger than the decedent. 

However, the changes from SECURE Act are extensive enough to consider revisiting an estate planning strategy to ensure that long term IRA Stretch trust goals are still consistent with new regulations.


If you would like to schedule an initial consult for your estate planning needs, call 704-755-5254 or email at info@acslawnc.com.