Most estate plans were drafted years or decades ago and reflect tax laws that no longer exist. The 2017 Tax Cuts and Jobs Act doubled the federal estate exemption (now $13.9M). The 2019 SECURE Act eliminated the 'stretch IRA' for most non-spouse beneficiaries. SECURE 2.0 (2022) made further changes. Yet most estate plans haven't been reviewed since drafting. The gap between drafted-then and current law creates substantial unexpected tax consequences for heirs.
The biggest change: the 'stretch IRA' is gone. Pre-SECURE Act, non-spouse beneficiaries could 'stretch' inherited IRA distributions over their own lifetime. A 30-year-old inheriting from grandfather could spread the IRA balance across 50+ years of retirement, minimizing annual tax impact and maximizing tax-deferred growth.
Post-SECURE Act, most non-spouse beneficiaries must empty the inherited IRA within 10 years. The compressed withdrawal schedule pushes more income into fewer years, often spiking the beneficiary's tax bracket. Combined with the original owner's intent (typically to provide multi-decade benefit to heirs), the actual outcome is dramatically different.
Concrete example: father dies in 2020 with $1M Traditional IRA, naming his 35-year-old daughter as beneficiary. Pre-SECURE: daughter could take small annual RMDs (perhaps $20K/year) for 50+ years, smoothly distributing the inheritance. Post-SECURE: daughter must withdraw $1M (now grown to $1.5M+ over 10 years) by year 10. Her bracket spikes during withdrawal years. Total tax cost: dramatically higher than under stretch.
Pre-SECURE plans that haven't been updated still recommend complex 'stretch trust' structures designed for the old rules. These trusts often have unintended consequences under current rules. Specifically: 'conduit trusts' (which require pass-through to beneficiary) and 'accumulation trusts' (which can hold IRA distributions in trust) interact badly with the 10-year rule.
Concrete trust problem: a parent named a 'see-through trust' as IRA beneficiary in 2015, intending the trust to stretch distributions over the daughter's life. Post-SECURE, the trust must take the entire IRA out within 10 years. If the trust is an accumulation trust, the distributions stay in the trust, which faces compressed trust tax brackets (37% rate at $15,200 of trust income in 2026 vs $640K+ for individuals). The combined trust + IRA result is substantially higher tax than direct beneficiary designation would have produced.
Update needed: review trust beneficiary designations on retirement accounts. For most non-spouse situations, naming individuals directly as primary beneficiaries (rather than trusts) is now better. Trusts make sense for specific situations (minor beneficiaries, special needs, asset protection concerns) but the default should now be direct designation.
Spousal special treatment: surviving spouses still have full flexibility post-SECURE. They can roll the inherited IRA into their own IRA (treating as if they owned it), keep as inherited IRA, take RMDs based on the deceased's age, or other options. Most spouses should review the optimal choice with each death.
Eligible designated beneficiaries: SECURE Act preserved stretch treatment for: surviving spouses, minor children of the deceased (until age 21, then 10-year rule kicks in), disabled individuals, chronically ill individuals, beneficiaries less than 10 years younger than the deceased.
Disabled or chronically ill: still qualify for stretch treatment. Important for special needs planning. Many estate plans naming children as beneficiaries should be updated if a beneficiary later becomes disabled.
Chronological gap problem: many beneficiaries less than 10 years younger than the deceased don't realize they're 'eligible designated beneficiaries' and don't claim stretch treatment. They unnecessarily compress withdrawals into 10 years. Update tax software or work with a CPA to ensure correct treatment.
Roth conversion as estate planning: with the 10-year rule, Roth IRAs are dramatically better than Traditional for most heirs. Roth withdrawals are tax-free, so the 10-year rule has minimal cost. Traditional withdrawals are taxable, often spiking heir's brackets.
Strategic move: convert Traditional IRAs to Roth during your lifetime to make the eventual inheritance better for your heirs. You pay conversion tax now at your rates; your heirs avoid the more punitive 10-year-rule taxation. For families with substantial pre-tax retirement assets and adult children expected to inherit, this can save the family $100K-$500K of cumulative tax.
Estate tax planning has shifted with the higher exemption. Pre-2017, the federal estate exemption was $5.49M. Many wealthy families implemented complex avoidance structures to manage estates of $5-10M. With the current $13.9M exemption (and $27.8M for couples), most of these structures are unnecessary. Old plans that lock wealth in trusts or make it inflexible no longer make sense.
Sunset risk: the doubled estate exemption is scheduled to potentially halve after 2026. If exemption returns to ~$7M each ($14M for couples), many families that aren't currently estate-tax-exposed would become exposed. Plan for this possibility. Lock in current high exemption via gifts now (irrevocable) before potential reduction.
Update beneficiary designations after life events: marriage, divorce, birth of children, death of family members all should trigger beneficiary review. Outdated designations are a common source of estate planning disasters — IRA goes to ex-spouse instead of current spouse, life insurance pays to deceased relative, etc.
Working with current estate planning attorneys: estate plans drafted before 2020 likely need updates. Cost of update: $1,500-$5,000 typically. Cost of NOT updating: potentially tens to hundreds of thousands of dollars in unexpected taxation for heirs. The cost-benefit is overwhelming.
Year-end review checklist: each year, review beneficiary designations on retirement accounts, life insurance, brokerage accounts, and 529 plans. Review trust documents if your situation has changed. Reconsider gifting and estate strategies given current law and exemption levels. Estate planning isn't a one-time event — it requires ongoing attention as laws and life circumstances change.