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Protect your estate plan from potential changes

On Behalf of | May 13, 2022 | Estate Planning

There are some proposed plans afoot with the Internal Revenue Service (IRS) that could have major implications on the financial bequests you leave for heirs and beneficiaries. These proposed changes could even retroactively affect inheritances from 2020 onward.

We realize that many of our clients have diligently attended to their estate planning and consider the task to now be in their rearview mirrors. But as with any sweeping governmental changes, there can be fallout to address. The following can help you prepare as necessary.

Retroactive changes affect beneficiaries other than spouses

If these proposed federal regulations become the rule, the traditional individual retirement accounts you plan to leave to beneficiaries other than spouses (think: 403(b)s, some 457(b)s, 401(k)s and IRAs) would require annual withdrawals over a decade.

Those most likely to be affected would be adult children over 20 and grandchildren, although the changes will affect any non-spousal heirs who have inherited these accounts since 2020.

According to reports from The Wall Street Journal (WSJ), if the owner of the account “died on or after April 1 of the year of his or her 72nd birthday,” each non-spousal beneficiary would have to withdraw the minimum taxable amount annually for a decade from the date of their inheriting the accounts.

The required minimum distributions (RMDs) are intended to empty these accounts over the 10 years. Amounts not withdrawn within the proposed period would get reduced by a 50% penalty on the accounts.

Growth impeded by forced withdrawals

Your heirs’ inheritances could shrink markedly due to these changes. Certainly, those are not your intentions.

While nothing is yet set in stone, our intention is always to keep our clients well-informed of proposed changes that can affect their estate plans.  Those who have questions or anticipate making any changes are encouraged to reach out to learn more.