Delivering News and Updates on Wills, Trusts, and Estate Administration Matters
In this edition, uncover ways to secure the inheritance of your retirement plans under the SECURE Act, consider how to provide a safety net for your college-bound child, discover the most popular ways moms were thanked this Mother's Day, and see how you can help us reach a Social Media milestone! 💐

How to Secure the Inheritance of Your Retirement Plans Under the SECURE Act
(PART 1 of 2)

On January 1, 2020, the Setting Every Community Up for Retirement Enhancement (SECURE) Act went into effect. The new law threw estate planning for qualified retirement accounts on its ear as it changed the rules for the inheritance of IRAs and 401(k)s following the original account holder's death. Under the prior law, if your children inherited your retirement accounts, they would begin taking Required Minimum Distributions (RMDs) annually. But, the amount of the distribution would be calculated based on your child's life expectancy. This was often referred to by planners as a "stretch IRA" since the receipt of the retirement account could be stretched out over the life of your child.

Unfortunately, Congress giveth and Congress taketh away. Under the SECURE Act, Congress all but eliminated the option to stretch out retirement account distributions over the life expectancy of the beneficiary.

So, what are the new rules? And how does this affect who you name to be your beneficiaries? Here's what you need to know:
  • If the retirement account is inherited by anyone other than your spouse, then the account must be fully distributed by December 31st of the 10th anniversary of the original IRA or 401(k) account holder’s death. This is referred to as the 10-year payout rule.

Although there is no mandated “withdrawal schedule” included in the SECURE Act, the proposed IRS Regulations issued in February 2022 (but not yet formally approved) do state that the beneficiary must take RMDs annually during the 10-year payout period. The remaining balance (that portion not taken in the form of RMDs) must be distributed by the end of the 10th year following the account holder’s death.

Spouse beneficiaries do not follow the 10-year payout rule. The SECURE Act did not change the rules for spouses. Spouses retain the favorable rollover provisions that existed under the prior law.

There is also an exception to the 10-year payout rule for a chronically ill or disabled beneficiary or a beneficiary who is less than 10 years younger than you (such as a sibling). These beneficiaries are eligible for the "stretch," meaning they can continue to receive IRA distributions over their remaining life expectancy.

For more information about the different rules that apply to spouse beneficiaries and non-spouse beneficiaries, review the section from the IRS regarding the death of an account owner after 2020 here: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary.

  • There is a slight modification to the 10-year payout rules for your minor children—the payout window does not start until your child’s 18th birthday. However, your child will still be forced to empty out the entire IRA or 401(k) by his or her 28th birthday under the terms of the SECURE Act.
This modification only applies to your minor children. It would not apply to stepchildren, nieces or nephews, grandchildren, godchildren, or any other beneficiary who is under the age of 18 at the time of the account holder's death. For minors who are not your children, the 10-year payout period starts immediately upon the death of the account owner.
Of course, once your child reaches age 18, nothing stops him or her from withdrawing the entirety of the account in one lump sum whenever he or she chooses (say, their 21st birthday... Vegas, anyone?). They can take it all as one lump sum or take out bits here and there like your IRA is their personal piggy bank. The only requirement—aside from taking annual RMDs—is that the retirement account be zeroed out by the time your child turns age 28.

  • It is worth noting that distributions from a traditional IRA or 401(k) are taxed to the recipient. Therefore, if your beneficiary takes $100,000 a year from your million-dollar IRA, he or she will pay substantial federal and state income taxes on the amount he or she receives each year. In planning for the inheritance of your retirement accounts, you may want to consider if your beneficiary is financially sophisticated enough to realize the tax implications of these withdrawals.
 
Look for PART 2 in our June issue, which will cover the viability of naming a revocable
living trust as the retirement account beneficiary to get around the 10-year payout rule.

If you can't wait until June or have questions about the rules covered in Part 1, schedule an advisory phone call with Attorney Amy Privette. And, for a more thorough analysis of all of your beneficiary arrangements, call the office or send us an email to set up a Beneficiary Alignment.
How to Prepare for College
the Estate Planning Way!

First up - high school graduation.

Next - waving goodbye to a newly-minted adult as you leave your baby behind at college.

This time of year, parents are thinking a lot about what comes next for their kids.

How do you prepare your child for life success, not just academic success?
Teaching your child the importance of responsibility is a big part of the answer.
We believe part of being a responsible adult is having basic legal documents in place. Documents that embrace independence but allow Mom and Dad to continue to operate as a safety net, if needed. The documents we suggest for high school graduates are:

  1. a Durable Power of Attorney, which gives parents the legal authority to assist their child with financial and personal matters should help be needed;
  2. a Health Care Power of Attorney, which gives parents the ability to make medical and mental health care decisions for a child who is incapacitated and unable to make his or her own decisions;
  3. a HIPAA Authorization, which gives parents the ability to obtain information from doctors, nurses, clinics, hospitals, etc. about the health and well-being of their child as well as the details of any bills needing to be paid, and
  4. a Basic Will, which allows the young adult to decide who should receive their personal belongings, their car, the money they have in the bank, and anything else they own that might be of value. Without a Will, North Carolina law dictates who the heirs will be and in what shares. If you child wants to have a say, then they need a Will!
Your child may also want to sign a FERPA release to allow access to educational records.

These documents are needed more than ever given the fact that social media is such a large part of our lives and your child's memory collection process. You need to make sure there's a plan in place to preserve the pictures posted on the young adult’s social media accounts and that passwords and answers to security questions associated with those accounts are readily available. There are also young people making good money playing video games online or posting original YouTube content. Your child's estate plan needs to cover how to access that income, and don't forget that tax returns may be needed as well!

These estate planning documents are not a way for parents to exert unwarranted control. Instead, these are tools that will allow parents to continue help your child, as you have done for your son or daughter's entire life. In an emergency, your child will want his or her parent making decisions about what's best, not the hospital, and certainly not the court.
PHEW! And you thought you could get by with a couple of trips to Target and a few Amazon orders to complete your to-do list. Well, never fear! We have made it easier than ever for your college-aged student to be able to embrace adulthood and spread their wings - all with a loving safety net.

The College Core Four is the perfect starter plan. Encourage your child to take the necessary steps to secure their future, be responsible, and create a plan for life success.

Let's set them up with the College Core Four now!
Call us at (919) 678-5761 to get the process started before move-in day!
As a verb, "Mother" is defined by Webster as this: TO CARE FOR.
We thank women near and far who mother children of their own households, in their neighborhoods, in schools and churches, within their extended families, and in many other spaces and places. American moms are influencing over 73.1 million children.

In a nutshell [wink wink], here is how Mother's Day 2023 unfolded:
  • 122 million phones rang on Sunday, May 14.
  • Greeting cards topped the list of Mother’s Day gifts.
  • Americans spent $35.7 billion this Mother’s Day.
  • Mother’s Day ranks as the busiest restaurant day of the year.
  • The carnation is the official flower of Mother’s Day.
  • Mother’s Day is the third most-attended church service of the year.
  • What moms wanted most for Mother's Day was for someone to take on all the household chores! (Can I get an Amen?!)
Can you help us get to 500 followers on Instagram?
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