It’s ironic, isn’t it?

As individuals, most planners hate change. Yet we work in an industry notorious for it. And make no mistake—the SECURE Act has changed the game.

But, despite the changes it’s brought, success is still possible. We just need to be more purposeful in our planning, and more diligent in our conversations with our clients.

While the new legislation brings guaranteed income to the front of mind, there are several pitfalls that are harmful to our clients. These can’t be ignored and must be addressed for our clients to have success in retirement and legacy planning. Several questions need to be asked during each and every client interaction – regardless of whether it’s a new client or someone you’ve been working with for years.

By always asking these three important questions, you’ll make sure to steer your clients clear of the hidden traps within the SECURE Act.

1. Where do you want your qualified funds to go at your death?

The answer to this question probably hasn’t changed with the passage of the SECURE Act.  The path traveled to pass assets to heirs, however, probably should. With the modifications to the stretch provisions, there are reasons to name additional beneficiaries in certain situations. Naming a trust as the beneficiary to complete your clients’ legacy wishes needs to be reviewed, especially for those trusts requiring required minimum distributions to be disbursed to spendthrift individuals.

Understanding the “why” behind these beneficiaries is helpful when advising clients on the proper path. The more your clients understand, the more confidence they’ll have in you and in their financial plan. Too often, we just add a person to the beneficiary line without explaining the rationale behind the decision.

2. How do you want the assets distributed?

When discussing changes brought about by The SECURE Act, this is a big one. If the goal was to just let the client’s family receive a lump sum, there is probably no need to change. But many people have specific income plans to either distribute or inherit family wealth, and a lump sum isn’t going to meet their needs.

The SECURE Act provides a new angle to the sandwich generation. How you receive an inheritance and pass your assets to your heirs is affected by the new legislation.

Your clients are stuck in the middle of $30 trillion of wealth transfer over the next quarter-century. The assets they receive and give away are greatly affected.

Your clients need to understand the ramifications of the new qualified plan payout rules from every perspective – control of the asset, taxation and family wealth transfer. As their advisor, you have an opportunity to provide them with the information they need to retire securely. You’ll be strengthening your relationship at the same time.

3. Do you want to the wealth to be transferred before- or after-tax?

Granted, for the most part, taxes still need to be paid. The SECURE Act accelerates the taxation on qualified dollars to pay for some of the other benefits of the act. Many clients have set a target amount, after-tax, that they hope to be able to transfer to the next generation.

Many tax levers create a complicated system. Due to the acceleration of the payout, it’s easy to pull a lever that triggers unexpected taxation if you’re not careful. Business owners taking advantage of the Qualified Business Income, for example, might forfeit that benefit due to an inappropriately planned inheritance. Means testing and other taxes tied to income thresholds like Modified Adjusted Gross Income (MAGI) will be pierced, causing additional taxation on inheritance.

Given the massive amount of wealth scheduled to transfer in the next 25 years, this simple acceleration of the payout will likely increase overall tax revenue. Clients don’t need the surprise of additional taxes, especially those high-wage earners that are using the Tax Cut and Jobs Act to control taxation.

Start by asking yourself what the current valuation is based on. Is it strictly market performance, an effective money manager, or outstanding customer service? And then compare that valuation to one from the past. The year 2010, for example. 

How to Help Your Clients Navigate the Changes

Once you have answers to these important questions, you have what you need to start creating solutions. There are many ways to simulate the previous stretch provisions and control taxation of the inheritance.

Here are some additional ideas to discuss with clients after understanding the above three questions:

  1. Charitable giving or naming a charity as a beneficiary
  2. The increased use of life insurance in irrevocable life insurance trusts funded by IRA payouts.
  3. Splitting beneficiaries to multiple generations with varied dollar amounts
  4. Strategically converting traditional IRAs to Roth IRAs.
  5. Continuing to use qualified charitable deductions to reduce income after 70 ½

Transformational Tactic

Sit down with every client and review these three important questions. Then help them understand the solutions that will help them achieve their goals.



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