New IRS Regulations Applicable to SECURE Act – Part 3
In this third post on new proposed IRS regulations applicable to the SECURE Act, I cover cases where a disabled individual is the beneficiary of a retirement account. Before I do, however, let’s briefly review the changes made by the SECURE Act. The law, which became effective for 2020 tax year, raised the minimum required distribution age from 70 and 1/2 to 72. At the same time, however, Congress severely limited the ability to stretch out payments from tax deferred retirement accounts by death beneficiaries when the account owner dies. With limited exceptions, an inherited retirement account must be emptied within an outer limit of 10 years instead of over the life expectancy of the beneficiary. Last week we discussed exceptions to this outer limit year in the case of a surviving spouse and minor child as death beneficiaries. This week I cover disabled and chronically ill death beneficiaries. First let’s define these terms. A death beneficiary is considered disabled if, at the death of the retirement account owner, he/she is unable to engage in any substantial gainful activity because of any medically determinable physical or mental impairment that is expected to result in death or be of long continued and indefinite duration. This definition is almost identical
New IRS Regulations Applicable to SECURE Act – Part 2
The subject of last week’s post was the proposed regulations concerning the SECURE Act which was passed by Congress and signed by President Trump at the end of 2019. This law made significant changes to the rules concerning IRAs and other tax deferred retirement accounts. To briefly summarize, while the new law raises the required minimum distribution (RMD) age from 70.5 to 72 (good), it also establishes an outer limit year by which, in most cases, assets need to be withdrawn from these taxed deferred accounts (bad). To be clear, these new rules do not apply to your own IRA, meaning one which you establish yourself by making contributions while you are alive. They are intended instead to severely limit the continued tax deferred status of an IRA that you inherit from someone else as a beneficiary when that account holder dies under what have been referred to as “stretch” provisions. Last week we examined how this new law affects retirement accounts in which the surviving spouse is the death beneficiary. This week we look at instances in which minor children are the death beneficiaries. Most people designate their surviving spouse, or alternatively, their children as beneficiaries of their estate including retirement accounts. Although it does not occur
New IRS Regulations Applicable to SECURE Act
I last posted about the SECURE Act a year ago. (2/28/21, 3/8/21 and 3/14/21) This law was passed by Congress at the end of 2019 and it included significant changes concerning retirement accounts, including IRAs and employer sponsored tax deferred accounts such as 401ks. The law was mostly negative although it did raise the required minimum distribution date from 70 and 1/2 to 72, meaning that account owners do not have to begin withdrawing funds until they are age 72. This was a small consolation prize because the law severely limited the ability to continue tax deferral status to beneficiaries at death by allowing them to stretch out the timeline under which they must withdraw these funds, what is known as “stretch” provisions. The new law left some questions unanswered - or at least created ambiguity. Last month the IRS announced proposed regulations that will take effect as of January 1, 2022, although they are not yet final and could change. As with anything put out by the IRS, these proposals are quite technical and not an easy read but there are some important takeaways for anyone with retirement accounts. The SECURE Act requires most retirement accounts to be withdrawn much faster than was the case before
Why It Pays to Have a Carefully Drafted POA – Part 2
In my post last week I told you about a call we received from a family member serving as agent under power of attorney (POA) for a client of ours. The son had been refused access to his mother’s individual retirement account (IRA) account because the bank claimed that the POA did not specifically include the power to access such accounts. Because financial institutions typically do not allow direct communication with their legal department I had to communicate through the local branch manager in order to resolve the issue. I asked the manager to have its legal department to cite the specific statute that requires explicit reference in a POA to IRAs. It could not. The POA I drafted did make specific reference to the section of New Jersey’s POA statute covering bank accounts which are defined to include checking, savings and certificates of deposit (CD). The account the agent was trying to access is a CD. It happens to be an IRA account but I pointed out to the manager that the statute does not distinguish between non-IRA and IRA CDs, therefore, the distinction is irrelevant here. I also alerted the manager to another section of the law that outlines the limited grounds for refusing to honor
Why You Need a Carefully Drafted POA (Part 1)
In this week’s blog post I want to talk about a call we received from a family member of a client whose power of attorney we prepared about 12 years ago. The son who called was acting as agent for his mother and needed to access her IRA account. The bank where it is located refused to allow him that access. Over the years we have had many calls like this from clients who have run into problems with financial institutions. This is usually caused either by the financial institution’s misapplication of the law or its insistence that it has a policy that differs from the law. In this case, the bank told the son that the POA did not specifically reference retirement accounts so it refused his request. That’s when he called us. When I called the bank myself, the bank manager told me that the POA must by law specifically reference retirement accounts. When I pressed her further she said the legal department that reviewed the document advised her of the bank’s position. I asked whether their attorney was located here in New Jersey. Not surprisingly, she said, “no, the legal department is in Ohio”. I’ve seen this story before. I told the manager that there is no specific section
If I Move to Another State Do I Need to Update my Legal Documents? (Part 2)
If I Move to Another State Do I Need to Update my Legal Documents? (Part 2) In my post last week I discussed the need to update a power of attorney or health care directive when one moves from one state to another. This week we talk about wills and trusts. Is there a need to update these as a result of a move? The execution of legal documents such as wills and trusts is governed by state law. In New Jersey wills should be signed before a notary and 2 witnesses. We have a self proving will statute. Provided the testator (person signing the will) and witnesses state by way of affidavit in the will that the testator signs willingly as his or her free and voluntarily act, not under constraint or undue influence and is over the age of 18, the process of admitting a will to probate is relatively easy. There is no need to submit the will to a judge or before a legal proceeding. The Surrogate instead examines the will to determine if it meets the statutory requirements and then accepts the will and appoints the executor. If the will does not meet the requirements, however, because the will was executed in another state where