Wisdom in Wealth

Strategies, Stories, and Lessons Learned Over the Course of 25 Years Helping Families Plan Their Financial Lives

Set It and Forget It...Think Again

By Bill Beynon | March 12, 2020

Nothing is permanent but change. - Heraclitus

There are few things in life that are certain.  However, when it comes to estate planning, two things that are certain are taxes and change.  In my 25-year career alone, The Estate and Gift Tax laws have changed several times.

Ron PopeilIn the 1980’s and 90’s, the famous infomercial “Pitch Man”, Ron Popeil, coined the tag line “Set It and Forget It!.”  This catch phrase helped him sell over 25 million Showtime Rotisserie Ovens, ultimately generating over $1 Billion in sales. 

Although his tagline was hugely successful when it came to selling ovens, families cannot live in a “Set It and Forget It” world when it comes to estate planning. Good planning necessitates ongoing evaluation and evolution.  Family situations change, tax laws change, old planning strategies are eliminated, and new ones are created.  Families that look at their planning as a journey, not a destination, experience the best results. 

Change normally creates a need to update our planning.  Based on my experience, below are a few scenarios that typically prompt a change in planning:

  • Business Changes/Transitions
  • Sale of a Family Business to a Family Member
  • Sale of a Family Business to a Non-Family Member
  • Retirement
  • Estate Equalization Issues
  • Health / Long Term Care Issues
  • Caring for an Aging Family Member
  • New Children/Grandchildren
  • Financial Support Needs for a Child or Parent
  • Second Marriage
  • Beneficiary Concerns
  • Marriage of a Child

As you can see, there are endless changes to circumstances that could be cause to review your planning. For today, I will focus on legal and regulatory change that can stipulate review and revision of planning.

SECURE Act

On December 20, 2019, the SECURE Act was signed into law by President Trump.  The SECURE Act is a broad law pertaining to retirement/IRA planning for all Americans. The legislation is one of the most significant changes to retirement legislation since the Pension Protection Act of 2006.  It covers a variety of retirement planning facets. Much of the Act was designed to assist Americans in saving for retirement. 

PROs

In my view, the pros of this new regulation are:

  1. Allows long-term, part-time employees access to retirement plans
  2. More flexible rules surrounding annuities offered in plans
  3. Eases regulation regarding multi-employer retirement plans for small business
  4. Extends the Required Minimum Distribution age from 70 ½ to 72
  5. Removes age limits on retirement contributions (formerly capped at age 70 ½)
  6. Allows for up to $5,000 early withdrawal from retirement plans, penalty free, for birth and adoption expenses
  7. Allows for up to $10,000 early withdrawal, penalty free, from 529 plans for some student loan repayments

Cons

In my opinion, the major downside to the SECURE Act is the elimination of the “Stretch IRA”. The Stretch IRA allowed for non-spouse beneficiaries to spread their distributions over their life expectancy. Under the new rules, plan beneficiaries will be required to distribute the plan assets over 10 years from the death of the original account holder. Some exceptions exist for spouses, disabled individuals, and beneficiaries not more than 10 years younger than the account owner. Minor children beneficiaries have a special exception to the 10-year rule, but only until they reach the age of majority.

It is important to note that the change to the Stretch IRA only applies to beneficiaries who inherit an IRA where the owner of the IRA dies after January 1, 2020.

 

Change Can Affect the Structure of Our Planning

Law changes should be a trigger to evaluate planning to ensure existing plans still meet a family’s planning goals and needs.  New planning ideas created as a result of new regulation should also be considered.  If your plan includes provisions to pass your IRA to a trust, you should evaluate your plan. Typically, conduit or accumulation trusts were used to control and flow IRA distributions to your beneficiaries.  Some trusts will trigger a 5-year distribution schedule. If you are currently planning to flow your IRA through a trust (as beneficiary), you should likely have your documents reviewed in order to ensure compliance under the new rules. 

New planning ideas have already emerged that can potentially help families create pseudo-stretch options utilizing charitable remainder trusts. New ideas should be evaluated to determine if they align with your goals.

Many have asked why Congress and ultimately the President, agreed to end the Stretch IRA. In my view, it was a necessary trade in order to pay for the rest of the legislation. It has been estimated that the elimination of the Stretch IRA, could generate over $15 Billion in tax revenue¹. More importantly, this is an unusual sign of compromise in our current political environment.  We will be watching to see if this is a sign of what’s to come. 

In conclusion, change is inevitable. Therefore, it is important to regularly review and evaluate your estate plan. In my career, I have had the opportunity to work with many estate planning attorneys and planning professionals across the country. I don’t believe there is much we haven’t seen. If you would like to review your planning, we are here to help guide you through the process. 

 


Picture Source: Ron Popeil, Set it and Forget It!, ocregister.com 
¹Malito, Alessandra. “The Secure Act Changes the Way People Will Inherit Money - Are You Hit by the New Rules?” MarketWatch, MarketWatch, 9 Jan. 2020, www.marketwatch.com/story/the-secure-act-changes-the-way-people-will-inherit-money-are-you-affected-by-the-new-rules-2019-12-27.

 
CWA Asset Management Group, LLC is an SEC-registered investment adviser, doing business as Capital Wealth Advisors and as blueharbor wealth advisors.  Fundamental Global Investors, LLC is a SEC-registered investment adviser that is affiliated with CWA Asset Management Group, LLC. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and unless otherwise stated, are not guaranteed. Nothing herein should be interpreted as investment advice. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Specific companies or securities described in this report are meant to be illustrative of investment style. Such case studies are not meant to be, and may not be, representative of any portfolio or holdings of CWA Asset Management Group, LLC, or Fundamental Global Investors, LLC.

Please note that past performance is not indicative of future results.
 
This material is solely for informational purposes and is intended only for the named recipient. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision.
William Beynon
President & CEO

Author of Wisdom in Wealth.

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