Despite the IRA being intended as a retirement account and not an estate planning vehicle, many individuals use it for this purpose. The stretch IRA works seamlessly in this capacity, allowing designated beneficiaries to extend distributions from inherited individual retirement accounts over their lifetimes. Congress has long opposed this use, and on May 23, 2019, passed the new Secure Act, wherein a provision was included which eliminates the stretch IRA and replaces it with a 10-year payout for most non-spouse beneficiaries, including trusts.

For those that have named a trust as their IRA or plan beneficiary, this is disastrous. No longer will it be possible to control funds designated for beneficiaries and qualify for a stretch IRA, as so many had planned. Holders of large IRAs will be the most affected, as they are more likely to name a trust as their IRA beneficiary as a means of controlling the distribution of their wealth.

The good news is that times remains to change course. Though it seems inevitable that the new Secure Act will become law, this hasn’t happened yet. Starting now, anyone who has named a trust as their IRA beneficiary ought to review those plans and look into alternatives.

Life insurance, for instance, is set to emerge as a tax-efficient planning vehicle insofar as proceeds can be left to a trust, thereby gaining trust protection and simulating a stretch IRA. Withdrawing an IRA now, at today’s low tax rates, is not a bad idea, as the balance after tax can be invested in life insurance. One standout advantage here is that life insurance is not subject to required minimum distributions (RMDs) or complex tax rules, and is not taxed.

With the legislative changes coming down the pipeline, large IRAs look to no longer be valuable estate planning vehicles. As much of a headache as this may be, the result is merely that advisors will have to work out better, more tax-efficient plans for holders of such accounts. Frustrating? Sure. Catastrophic? Not at all.

For an extended conversation on effective IRA planning, download the free e-book “The 5 Simple Mistakes that Threaten Your IRA.” And remember, working with a financial planner and estate planner will ensure that you make the best decisions for you and your family. Don’t make important decisions in haste or out of fear—rely on your legal and financial team to guide you. They are called “advisors” for a reason.