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SECURE Act Clarifications Are, Well, Confusing

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SECURE Act clarifications

Last month the Internal Revenue Service took a major step in interpreting the SECURE Act of 2019. The SECURE Act clarifications are helpful. They are also confusing.

The SECURE Act (recap)

To review: in the closing days of 2019, Congress adopted a far-reaching new law on retirement account beneficiaries. The Setting Every Community Up for Retirement Enhancement (SECURE) Act rewrote all of the rules we had learned to live with for the past two decades.

The two biggest changes in SECURE (reasonable minds could differ, but they struck us at the time as the most important):

  1. Minimum distributions moved to age 72, from age 70 1/2, and
  2. Almost all retirement account beneficiaries would have to withdraw all of the retirement money they inherited in the ten years after the account owner’s death.

But lots of unanswered questions plagued practitioners. Everyone knew that the IRS would need to issue some SECURE Act clarifications. And now the agency has done that. Their proposed regulations run to 275 pages, so there’s bound to be some new confusion. And there is.

The SECURE Act clarifications

The new regulations address a number of uncertainties. Some of the IRS approaches will be controversial. Some will probably get changed before the regulations become final. And the IRS openly asks for input on at least one uncertain point involving special needs trusts. Some of the highlights:

Age of majority

The SECURE Act created special rules for an account owner’s minor children named as beneficiaries. Rather than having to empty the retirement account in ten years (like most beneficiaries), the minor child could use their own life expectancy for a much slower payout. That could mean, for example, that a twelve-year-old IRA beneficiary could withdraw about 1 1/2% of her inherited IRA in each year until she reached the age of majority.

But what is the age of majority? Is it 18, or 21? Does it depend on state law? Does it make a difference if the child is still in school?

The new regulations choose age 21, and ignore educational status. That means that a child of the account owner will effectively have until age 31 to empty an inherited retirement account. Note that this does not apply to grandchildren, or any other minor beneficiary — only the account owner’s children qualify.

Ten years means ten years. Sometimes.

One of the more confusing SECURE ACT clarifications involves the ten-year rule for emptying an inherited retirement account. The SECURE Act itself seemed to say that a beneficiary need not take any amount from an inherited retirement account at all until ten years after the owner’s death. So when the IRS released a form that seemed to imply that a beneficiary would have to take their age-calculated minimum distribution in each of those nine years leading up to the final year, everyone panicked. The IRS quickly backed down, but now they have clarified in a way that does not seem logical.

Let’s try an example

Say an IRA account owner dies in 2022, leaving his only daughter, aged 45, as sole beneficiary. The current life expectancy tables say that a 45-year-old beneficiary has an actuarial life expectancy of 41 years. So that would translate into a minimum distribution of about 2.5% of the account.

But our imaginary 45-year-old is neither disabled nor chronically ill. She is clearly not a minor child, and she is not the owner’s spouse. She’s also probably not less than 10 years younger than the owner (unless he was pretty precocious). So does she get to wait ten years and take everything out then — or does she have to take 2.5% of the account each year for those ten years.

The new SECURE Act clarifications say it depends on how old dad was when he died. Had he reached his age-72 required beginning date? If not, then his daughter has no duty to take anything out each year for ten years. But if he was over age 72 when he died, then she’ll have to take out that annual minimum distribution for nine years.

Even then, ten years isn’t really ten years

Well, actually, nine+ years. Because she doesn’t have to empty the inherited IRA by the tenth anniversary of her dad’s death. Instead, she has to empty it by December 31 of the year that contains that tenth anniversary.

Special needs trusts and charities

One of the serious questions plaguing special needs practitioners has been how to create trusts that will work as beneficiaries of retirement accounts. The SECURE Act clarifications help a little — but still create more confusion.

Here’s the problem: individuals with a child with special needs should be creating a special needs trust to handle any inheritance — whether it comes from retirement accounts or not. But one lingering problem has been who can receive the trust’s balance on the death of the child with special needs.

Sometimes parents (or anyone, really — but most often parents) don’t have other family members they want to benefit. They might prefer to leave any residual amount to a suitable charity. Like, maybe, a charity that helps children and disabled adults. Perhaps even a charity that has benefitted their own child over the years.

But prior retirement account rules made it difficult to construct such a trust. If a charity was the remainder beneficiary, any retirement account left to the trust probably would need to be withdrawn within five years. That could work a serious tax hardship if the bulk of the parent’s estate was in retirement accounts.

The SECURE ACT clarifications published last month help in many — maybe most — of those cases. If you want to name your son’s special needs trust as beneficiary of your retirement account, and then have the remaining account balance go to his siblings on his death, the new rules help you do that. You can even provide that a charity might receive some benefit if your non-disabled child dies before your child with a disability. But if there are no living individuals to take on your primary beneficiary’s death, there are still concerns.

…and a related issue

There has been another serious concern about special needs trusts after the SECURE Act. Many special needs trusts include a clause (often called a “poison pill” provision) that terminates the trust if any government agency ever treats the trust as an available resource that affects the beneficiary’s eligibility for Medicaid, or Supplemental Security Income. In their SECURE Act clarifications, the IRS freely acknowledges that they don’t quite know how to treat such a provision. And they ask practitioners and family members to tell them how they think the rules should be interpreted.

Whew! That was easy!

Yeah, we know it wasn’t. For every two clarifying steps forward, the IRS has to take one confusing step back. But hey — that’s why we’re here to explain it. And yes, we do know that we’ve simplified some of the explanations. We do that in the interest of making it possible to synopsize at all, of course.

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Robert B. Fleming


Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman


Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson


Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

Famous people's wills

Matthew M. Mansour


Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.