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Why You Might Want a SECURE SNT

By Harry S. Margolis


As we’ve discussed before (here), the SECURE Act, passed at the end of 2019, changed a number of rules regarding inherited IRAs, making it more difficult to “stretch” them for most beneficiaries. However, an exception to the new rules could upend the advice we’ve often given clients doing special needs planning.

For many reasons, it’s usually not advisable to make an individual with special needs the beneficiary of a 401(k) or IRA. She may not be able to manage the funds and owning the account may render her ineligible for vital public benefits. This is why we always recommend that parents with children with special needs leave their share of their estates in a special needs trust for the child’s benefit. But we’ve often encouraged them to leave their retirement plans to other children, if any, because it gets complicated to hold a retirement plan in a special needs trust. (You can read more about “conduit” and “accumulation” trusts here.)

Why a SECURE SNT Can Save in Taxes

But the new rules have made us rethink this advice, especially when our clients have larger retirement plan accounts. Pursuant to the SECURE Act, most people who inherit retirement plans now must withdraw all the funds, and pay income taxes on them, within 10 years of inheriting them. One of several exceptions to this rule is recipients who are disabled. They can withdraw the funds over their life expectancies, which can be several decades, both postponing tax payments and potentially paying at lower rates for two reasons.

First, by spreading out the withdrawals over many years, they are less likely to push the recipient into a higher tax bracket. Second, a beneficiary with a disability is likely to be in a lower tax bracket in the first place than a non-disabled beneficiary.

For these reasons, it may well make more sense for some clients to have some or all of their retirement plans payable to a special needs trust for their children or grandchildren with special needs. It’s still more complicated to make use of a trust, but now the benefits of doing so are more likely to justify the added expense and complications. Whether it makes sense in your case depends on your exact situation.

Review Your Existing SNT

Further, be aware that if you have an existing special needs trust that was designed to accept retirement plan benefits, it needs to be updated to conform with the SECURE Act. Whether you have questions about your existing plan or would like to consider creating a SECURE special needs trust, feel free to contact your attorney or Laura Goodman at to review your plan.


Related Articles:

What You Need to Know about Special Needs Trusts and Taxes

3 Implications of the SECURE Act

SNT vs. ABLE Account: Which Makes More Sense for You

Divorce-Created SNT Deemed Self-Settled for Creditor Purposes

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