Pub. 2 2021 Issue 6

cbak.com 8 In Touch Successor Beneficiary Options Post-SECURE Act BY LISA HABERMAN, MBA, MAM T he idea of a “beneficiary” initially calls to mind the death of a loved one. For many, it also triggers emotions focused on carrying out the legacy of someone held in high regard. There was a time when the ability to carry out that legacy could be fulfilled over any beneficiary’s lifetime. But times have changed. Carrying out a loved one’s legacy now comes with a deadline for most nonspouse beneficiaries. In 2020, the Setting Every Community Up for Retirement Enhancement (SECURE) Act changed many aspects that qualified retirement plan and IRA beneficiaries need to consider, making the administration of beneficiary distributions more complex. While the industry awaits regulatory guidance implementing the statutory changes, one aspect that is straightforward is the distribution options for a successor beneficiary. A successor beneficiary is a beneficiary named by the original beneficiary after the account owner’s death. A successor beneficiary is meant to receive the assets if the original beneficiary dies before receiving all of his or her share of the assets. An original beneficiary naming a successor beneficiary allows for the seamless transition of assets after the original beneficiary’s death. Before SECURE While it’s important to understand how the new beneficiary options apply to successor beneficiaries, it’s equally important to know the options in effect before the SECURE Act applied. It’s not unusual to run into current situations where both the account owner and the original beneficiary died before Jan. 1, 2020, or the account owner died before Jan. 1, 2020, and the original beneficiary died after Jan. 1, 2020. In such cases grandfathering or transition rules apply. If the account owner and original beneficiary died before Jan. 1, 2020, the successor beneficiary must withdraw the assets at least as quickly as the original beneficiary. The original beneficiary may have been receiving withdrawals under the 5-year rule or life expectancy payments based on the original beneficiary’s options.