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The SECURE Act: Will it Affect Your Retirement Plan?

 A Late 2019 tax change will have a major impact on retirement planning!

Will the Secure Act Affect Your Retirement Plan

On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the “SECURE Act.”  Although it passed the House in July, the SECURE Act only recently passed through the Senate on December 19, as part of an end-of-year appropriations act.  The SECURE Act implements quite a few technical changes which will affect retirement planning in general.  However, some of the most significant changes will have a direct and very substantial impact on estate planning.

In previous years, a plan participant (i.e. the individual who initially established and funded the IRA) could pass unused IRA assets to a so-called “stretch-IRA” for the benefit of a designated beneficiary (i.e. a person inheriting IRA funds on the participant’s death).  The purpose of a stretch IRA was to extend the tax-deferral of the IRA.  This would allow the minimum required distributions to be stretched out over many years, thereby increasing the overall tax benefit of the account.  Often, participants would establish stretch-IRAs for their young grandchildren, hoping that the minimum required distributions would be based on each grandchild’s age.  This would allow more assets to retain tax-deferred status longer and thereby decrease the overall tax burden.  For large IRAs, this decreased tax burden could be very significant.

The SECURE Act eliminates the stretch-IRA for participants dying after 2019.  Under the new rules, inherited IRA assets must be distributed within 10 years of the participant’s death.  A few exceptions to this rule apply, for example, where the beneficiary is a surviving spouse, a minor, or a child (but not a grandchild) that is disabled.  But the new 10-year distributions rule will apply in most other circumstances.

Obviously, the loss of the stretch-IRA is important for tax planning purposes, but its significance goes even deeper.  For example, when planning for a stretch-IRA, a participant is likely to have established one or more trusts in his or her estate plan.  This type of planning would be particularly important where minors (like grandchildren) were expected to be the designated beneficiaries of the IRA.  Often, these trusts directed that no distributions were to be made from the trusts except for the required minimum distributions which would have been required under then-applicable law.  The expectation was that the IRA would be depleted incrementally over years.  This would give the beneficiary limited access to the IRA assets with marginal tax impact triggered by each distribution.  Under the new law, however, the required distribution comes at the end of the 10-year period.  Not only does this prevent the beneficiary from enjoying the extended use of the IRA assets, but the lump-sum distribution can have a seriously detrimental tax impact on the beneficiary.

Estate planning around retirement assets has always been complicated. The SECURE Act will actually make that planning a little bit easier moving forward (albeit at the cost of losing a pervious tax benefit).  However, for clients whose planning was carefully tailored to the old regime, significant changes may be needed to avoid a major tax trap.

If you’d like to discuss how your estate plan might be impacted by the SECURE Act, please contact our office to set up a consultation.


Christian Kelso | Farrow-Gillespie & Heath LLP | Dallas, TX

Christian S. Kelso, Esq. is a partner at Farrow-Gillespie Heath Witter LLP.  He draws on both personal and professional experience when counseling clients on issues related to estate planning, wealth preservation and transfer, probate, tax, and transactional corporate law. He earned a J.D. and LL.M. in taxation from SMU Dedman School of Law.

Trust Accountings and the Duty to Inform in Texas

Trustees have a duty to share trust information with beneficiaries. The nature and extent of the duty to inform is not well defined in the Texas Trust Code, however, and there is little case law on point.  There is slightly more guidance with regard to the duty to account, which is a subpart of the duty to inform, although many questions remain and can pose significant problems for trustees.

When considering a trustee’s fiduciary duty, most practitioners turn to the Texas Trust Code first.  However, the thoughtful practitioner will notice that the common law duty to inform predates the Trust Code and is broader than the statutory duty to account.  Also, the Trust Code directs trustees to “perform all of the duties imposed on [them] by the common law,” so an examination that is limited to the Trust Code may be incomplete.

A broad array of people are generally entitled to trust information and may include “a trustee, beneficiary, or any other person having an interest in or a claim against the trust or any person who is affected by the administration of the trust.”

Trust beneficiaries need information to protect their interests.  For a beneficiary to hold a trustee accountable, the beneficiary must know of the trust’s existence, the beneficiary’s interest in the trust, the trust property, and how that property is being managed. Trustees have a duty to provide this information to beneficiaries. This duty to inform is independent of the trustee’s duty of care.  Although a trustee holds legal title to trust property, that property is held for the benefit of the beneficiary.  Similarly, the books and records of the trust belong to the trust estate.  As such, it stands to reason that the beneficiaries should have access to them as well. 

On the other hand, settlors may not want their children to know about assets in their trusts for fear that they might become “trust fund babies,” and information sharing may be a security concern in the modern world. Formal accountings, in particular, are burdensome on both trustees and trust assets.  A typical accounting takes many hours to prepare.  A trustee may be able to do much of the initial work to prepare the accounting, but significant time spent by attorneys, accountants, and other professionals will likely also be required, and the related fees will usually be borne by the trust.

Additionally, the duties to inform and account cannot be waived in a trust instrument.  If this were possible, no trustee would serve unless such a waiver were present.  However, the duties may be limited in Texas to so-called “first-tier beneficiaries” who are generally entitled to distributions, either presently under the trust’s terms, or hypothetically, if the trust were to terminate.  By restricting the non-waivable provisions to first-tier beneficiaries, settlors can minimize frivolous pestering by contingent remainder beneficiaries.

Even where beneficiaries are entitled to information, caution is advised to those seeking it.  If a trust is revocable by, or grants a power of appointment to, someone who might be perturbed by such request, the requesting party might find herself written out of the trust! 

The common law duty to inform and the statutory duty to account are complicated elements of Texas law.  Farrow-Gillespie Heath Witter, LLP has helped many beneficiaries gain the information they need about their trusts.  We have also advised many trustees through the accounting process.  If you are in either position, we would be glad to talk with you about your rights or responsibilities and the potential risks you face.


Christian Kelso | Farrow-Gillespie & Heath LLP | Dallas, TX

Christian S. Kelso, Esq. is a partner at Farrow-Gillespie Heath Witter LLP.  He draws on both personal and professional experience when counseling clients on issues related to estate planning, wealth preservation and transfer, probate, tax, and transactional corporate law. He earned a J.D. and LL.M. in taxation from SMU Dedman School of Law.

Estate Planning & Elderlaw | Dallas, TX

Capacity to sign

Estate Planning | Farrow-Gillespie & Heath | Dallas, TXDifferent legal actions require different levels of mental capacity to be valid.  For example, the level of mental capacity required to sign a will, referred to as “testamentary capacity,” is lower than the level of capacity required to sign a contract, called “contractual capacity.” The various standards are discussed below.

Capacity to Sign a Will – Testamentary Capacity

To have testamentary capacity, the will signer must satisfy five requirements.  First, the signer must understand the business in which they are engaged.  Second, the signer must understand the effects of making a will.  Third, the signer must understand the general nature and extent of their own property.  Fourth, the signer must know to whom their property should pass or is likely to pass.  And fifth, the signer must be able to collect all of this information in their mind at once and understand the how it all connects.  They also must not suffer from an “insane delusion” that affects the will, nor be under undue influence from an outside party.

A person signing a will may do so during a lucid interval (sometimes also known as a “moment of clarity”), which is a time of mental capacity that is both preceded and followed by periods of mental incapacity.  As long as the signing occurs during this lucid interval, the person has capacity to execute the document at issue.

Testamentary capacity must be proven only if the will is challenged by someone during the probate process.  The party seeking to uphold the will (the will proponent) is the party who must prove that the testator did, in fact, have capacity at the time of the will signing.  To guard against claims to the contrary, the estate planning attorney should be certain that the testator has capacity at signing, and should not allow someone with questionable capacity to execute a will.

Capacity for Other Legal Arrangements

In contrast to testamentary capacity, the standard for legally signing other documents is generally higher.

Contractual Capacity

Contractual capacity is the mental capacity required to validly execute a contract.  Contractual capacity requires that the contracting person appreciates the effects of the act of signing the contract, and understands the nature and consequences of signing the contract as well as the business that they are conducting.

Power of Attorney

Although not entirely clear under Texas law, proper execution of a power of attorney probably requires contractual capacity.  The reason is that the POA is valid during the signer’s lifetime and can have a profound effect on business and financial transactions.

Donative Capacity

Donative capacity, or the capacity to make a gift, is an elusive concept in Texas, but other states require something that appears to be higher than contractual capacity. Common requirements are that the donor of the gift must understand the nature and purpose of the gift, the kind and amount of property given, who is a reasonable recipient of the gift, and the effect the gift will have on the donor.  Some states go so far as to require that the donor understand that the gift is irrevocable and that it will reduce the donor’s own assets.

Health Care Decisions

The capacity required to make health care decisions is more than mere mental capacity.  Patients must give “informed consent” to all health care procedures, which requires that the patient be competent and that the consent be given voluntarily.  The consent is informed when the health care provider gives the patient the information the patient needs to make the right choice.

The Effect of a Lack of Capacity

If a person does not meet the requisite mental capacity requirements when he or she enters into a legal arrangement, the arrangement and its supporting documents are generally void and unenforceable.  Third parties can challenge these documents if they believed the person lacked capacity when the documents were signed.  For a will, that means bringing a contest during the probate process.

Read More:
  • Michael H. Wald, The Ethics of Capacity, 77 Tex. B.J. 975 (2014).
  • Rudersdorf v. Bowers, 112 SW2d 784, 789 (Tex. Civ. App.—Galveston, 1938).
  • Tieken v. Midwestern State Univ., 912 SW2d 878, 882 (Tex. App.—Fort Worth, 1995).

Catherine Parsley was an intern at Farrow-Gillespie Heath Witter, LLP in 2017.  Ms. Parsley is a law student at SMU Dedman School of Law in Dallas, Texas, where she is a staff editor of the SMU Law Review.  Catherine served as a judicial extern for Chief Justice Nathan L. Hecht, of the Supreme Court of Texas.  She holds a B.S. in communications studies, cum laude, from the University of Texas at Austin.


Christian Kelso | Farrow-GIllespie & Heath LLP | Dallas, TXChristian Kelso is a Senior Associate at Farrow-Gillespie Heath Witter, LLP.  He practices in the areas of estate planning, wealth preservation and transfer, probate, tax, and transactional corporate law.  He earned a J.D. and LL.M. in taxation from SMU Dedman School of Law. Mr. Kelso has written and presented on numerous topics, including a recent webinar sponsored by the State Bar of Texas, entitled “Caregiver Do’s and Don’ts.”

It’s time to make your 663(b) trust and estate distributions!

Christian Kelso | Farrow-GIllespie & Heath LLP | Dallas, TX

Contact Christian Kelso to guide you through the estate planning process.

Trusts and estates often pay more tax than individuals in like circumstances.  This is not because they are taxed at higher rates, but rather because the same rates applicable to individuals are “compressed,” meaning that each marginal rate increase happens at a lower level of income than it does for individuals.  For example, the highest rate of income tax for both trusts and individuals for 2016 was 39.6%, but whereas this rate only applies to income over $415,050 for single individual filers, for trusts and estates, this rate applies to all income over $12,400.  Other tax burdens, such as the 3.8% Net Investment Income Tax (a/k/a the “Obamacare Tax”) and higher rates of capital gains tax follow suit along similar lines.  Obviously, these add up to a significant potential tax burden.

Fortunately, there is a way to mitigate this tax burden.  Trusts and estates may take a deduction for “distributable net income,” which is generally the amount of income that is distributed from the trust to a beneficiary.  When this happens, the income is effectively shifted from the trust to the beneficiary, who simply adds it to their personal return and pays at whatever rate is applicable to them (including the distributed trust income, of course).

Since large amounts of unnecessary tax can be avoided by shifting income to beneficiaries in this manner, it is common practice for trustees to make distributions for this purpose, assuming, of course, that such distributions are permissible and proper under the terms of the trust.  But there is a problem:  How does the trustee know how much income to distribute from a given trust before the close of a given tax year?  Unfortunately, it is impossible, to know exactly how much income a trust has until after the tax year has closed, at which point, it’s too late to distribute all the income.

Enter IRC §663(b).  Under this special provision, a trust or estate may elect to treat any distribution made within the first 65 days of a given tax year as having been made on December 31 of the previous year.  In other words, the trustee gets 65 days after the actual close of the year to calculate how much income should have been distributed and then actually make that distribution.  The trustee then makes an election on the trust or estate’s income tax return (Form 1041) and voila, the problem is solved!

Although §663(b) distributions may provide a significant benefit, the can also represent a significant danger to trustees.  On the one hand, any distribution from a trust should only be made if and to the extent it is proper under the terms of the trust.  Even if such a distribution is permissible, it may not be in the best interests of a given beneficiary, as taxes are only one of many considerations.  On the other hand, a §663(b) distributions can save a significant amount of tax, so failing to make such a distribution, if permitted, could subject a trustee to liability for waste.

Making the right decision requires careful analysis.  The fiduciary attorneys at Farrow-Gillespie Heath Witter, LLP are well-versed with the applicable law and have the practical experience to understand the nuanced process that is involved with make the right decision.  If we can help you with this, please don’t hesitate to call.

The trust and estate planning attorneys at Farrow-Gillespie Heath Witter LLP, located in downtown Dallas, serve all of your trust and estate planning needs, including:

  • Estate planning for small estates
  • Estate planning for large, taxable estates
  • Trust review and modification
  • Trust and estate administration
  • Trust litigation
  • Will contests
  • Probate
  • Heirship proceedings
  • Guardianships