Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Tuesday, May 18, 2021

Article: IRS Guidance About the SECURE Act's Beneficiary Provisions Requires Revision

Albert Feuer recently published an article entitled,  IRS Guidance About the SECURE Act's Beneficiary Provisions Requires Revision, Wills, Trusts, & Estates Law ejournal (2021). Provided below is the abstract to the Article. Estate planning

The IRS has presented its first and only guidance about how the SECURE Act changed the Minimum Required Distribution (MRD) Rules. This was done in a detailed IRS guide for preparing 2020 returns, and an IRS FAQ web site that referenced the guide that had been released a day earlier. The SECURE Act limited the set of individual beneficiaries permitted to use their own life expectancy to stretch out the benefit distributions after the death of participant. Non-favored individual beneficiaries became subject to a 10-year rule similar to the 5-year rule upon which it is based. The 5-year rule does not require any benefit distributions before the end of the 5-year period, but requires distribution on or before the final day of the period. The 5-year rule is applicable to an estate or trust not treated as a pass-through entity when the participant died before attaining the participant’s required beginning date.

The IRS correctly treats the 10-year rule as replacing a disfavored individual beneficiary’s ability to use the beneficiary’s life expectancy to determine annual MRDS. The return guidance incorrectly describes the 10-year rule as requiring annual distributions in each year following the participant’s death even though the 5-year rule has no such requirement. Furthermore, when the participant dies after attaining the participant’s required beginning date, the IRS guidance prevents a disfavored individual beneficiary from continuing to use the participant’s life expectancy to determine annual minimum required distributions. The IRS does this even though such continuation would result in no further stretch-out of the benefit distributions, and an estate or trust not treated as a pass-through entity may so use the participant’s life expectancy. These limitations are not consistent with the stated purpose of the SECURE Act MRD provisions, the long-standing IRS regulations interpreting the MRD rules, or the amended MRD statute as a whole. Moreover, they may be readily avoided by well-advised participants.

https://lawprofessors.typepad.com/trusts_estates_prof/2021/05/article-irs-guidance-about-the-secure-acts-beneficiary-provisions-requires-revision.html

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