A new trust is available in ElderDocx®. The EC Secure Supplemental Needs Trust™ (SNT) is a trust specifically designed to hold the proceeds of the Grantor’s retirement account after the Grantor’s death, for a disabled or chronically ill beneficiary, while still preserving the beneficiary’s eligibility for government benefits.
This new trust was designed in response to the passage of the SECURE Act, which became effective on January 1, 2020. The SECURE Act drastically changed the way inherited retirement accounts operate. Before the SECURE Act, most any individual could inherit a retirement account and stretch the required minimum distributions over their lifespan. This allowed the money to sit in the account and accumulate wealth, tax deferred. After the SECURE Act, only certain eligible designated beneficiaries are entitled to a stretch.
IRC 401(a)(9)(E)(ii) –
“(ii) ELIGIBLE DESIGNATED BENEFICIARY.—The term "eligible designated beneficiary" means, with respect to any employee, any designated beneficiary who is—
(I) the surviving spouse of the employee,
(II) subject to clause (iii), a child of the employee who has not reached majority (within the meaning of subparagraph (F)),
(III) disabled (within the meaning of section 72(m)(7)),
(IV) a chronically ill individual (within the meaning of section 7702B(c)(2), except that the requirements of subparagraph (A)(i) thereof shall only be treated as met if there is a certification that, as of such date, the period of inability described in such subparagraph with respect to the individual is an indefinite one which is reasonably expected to be lengthy in nature), or
(V) an individual not described in any of the preceding subclauses who is not more than 10 years younger than the employee.” (emphasis added)
The SECURE Act further promulgated a “special rule in the case of certain trusts for disabled or chronically ill beneficiaries”. The Secure SNT is designed to comply with the special rule and the other nuances of the SECURE Act. How is the Secure SNT designed?
- It is an accumulation trust.
- It is designed for one Grantor and one lifetime beneficiary that is disabled or chronically ill.
- Retirement account proceeds cannot be distributed to any non-individual. Meaning, the trust cannot be designed to have a charity as a remainder beneficiary.
- The Trustee must withdraw the required minimum distribution each year. The Trustee may withdraw more.
- The trust can be designed to use the lifetime beneficiary’s life expectancy for calculating required minimum distributions. Or, it can be drafted to name a maximum-age beneficiary for such purposes.