For clients, a key component of sound financial and tax planning has always been maximizing the tax-deferred growth within an inherited Individual Retirement Account (IRA). Historically, trusts were the primary tool used to control and “stretch” those IRA distributions over a beneficiary’s lifetime.
The passage of the original SECURE Act of 2019 and the subsequent clarifications under SECURE 2.0 (2022) have dismantled this core planning strategy for most non-spouse beneficiaries, replacing it with a hard 10-year distribution rule. Many existing trusts drafted before 2020 are now ticking tax time bombs. These trusts risk accelerated income taxes, loss of asset protection, and unexpected penalties.
Advisors who proactively identify and resolve these outdated trust structures can turn regulatory confusion into a powerful client retention and value opportunity. Wealth.com, as the leading estate planning platform for financial institutions, is designed to immediately address this exact challenge. The platform empowers financial advisors to modernize estate planning for their clients by providing the infrastructure needed to identify at-risk documents and bridge estate planning and wealth management, ensuring regulatory shifts do not compromise client legacies.
In This Article: An Advisor’s Guide to the SECURE 2.0 Trust Trap
- The Collapse of the Stretch IRA Strategy
- Conduit vs. Accumulation: A New Tax-Time Dichotomy
- Identifying the Clients Most at Risk
- Rewrite vs. Amendment: The Decision for Advisors
- How Wealth.com Modernizes Regulatory Change for Your Firm
The Collapse of the Stretch IRA Strategy
Before the SECURE Act, a trust named as an IRA beneficiary could often “look through” to the individual beneficiary, allowing distributions to be spread, or stretched, over that beneficiary’s life expectancy. This provided decades of tax deferral and protection.
The new legislation largely eliminated this benefit for Designated Beneficiaries (DBs), which include most adult children and grandchildren, requiring the inherited IRA to be fully distributed by the end of the tenth year following the original account owner’s death.
For many clients, the Wealth.com platform serves as the critical tool for stress-testing these trusts against the new rules and initiating necessary restructures.
Conduit vs. Accumulation: A New Tax-Time Dichotomy
The 10-year rule dramatically alters the consequences for the two most common types of trusts used as IRA beneficiaries:
1. Conduit Trusts (High-Risk Payout Acceleration)
- Original Intent: Designed to mandate that every distribution received by the trust from the IRA must be immediately passed out (“conduited”) to the individual beneficiary. This ensured the trust qualified for the favorable stretch IRA rules.
- SECURE 2.0 Trap: Under the 10-year rule, a Conduit Trust must pass the entire IRA balance to the beneficiary by the end of the tenth year. This forced lump-sum payout can create a massive tax bill in year 10, pushing the beneficiary into a higher income tax bracket and exposing the inheritance to creditors, divorce, and poor financial decisions. The trust’s original goal of asset protection is lost.
2. Accumulation Trusts (High-Risk Tax Inefficiency)
- Original Intent: Designed to give the trustee discretion to either pay out or retain (“accumulate”) IRA distributions within the trust for asset protection purposes.
- SECURE 2.0 Trap: While the trustee can still accumulate the distributions and provide asset protection, the trust itself is a separate tax entity that reaches the highest federal income tax bracket (currently 37%) at an extremely low threshold (e.g., just over $15,000 in undistributed income). This dramatically erodes the inheritance through avoidable taxation, negating the benefit of tax-deferred growth.
Identifying the Clients Most at Risk
You must prioritize an immediate review for clients whose plans risk catastrophic tax outcomes.
- Clients with Trusts Established Pre-2020: These documents were drafted with the expectation of a lifetime stretch and must be reviewed for language that now unintentionally forces a lump-sum payout.
- Clients with Trusts Naming Non-Eligible Designated Beneficiaries (DBs): This includes trusts for financially unsophisticated adult children or trusts for grandchildren. These beneficiaries lose the stretch and are subject to the strict 10-year rule, creating maximum exposure.
- Clients Who Died Post-2019 (Deceased Account Owner): If the account owner died after 2019 and had already begun Required Minimum Distributions (RMDs), their non-spouse beneficiaries are subject to a subtle, but critical, annual RMD requirement during the 10-year period. Failure to take these RMDs in years 1-9 may result in an additional tax of up to 25% on the missed amount. Wealth.com helps manage this complex calculation and compliance burden for the firm.
Rewrite vs. Amendment: The Decision for Advisors
The necessary action depends on the trust’s original intent and the severity of the tax exposure. Wealth.com accelerates this decision process by providing a clear structure for documenting client intent.
| Condition | Immediate Action Required | Strategy | Rationale |
| Outdated Conduit Trust (Named for a DB) | IMMEDIATE | Rewrite or Significant Amendment | The trust’s core function (forcing payout) now causes a severe tax acceleration. The risk is too high to wait. |
| Trust for Eligible Designated Beneficiary (EDB) (e.g., minor child, disabled individual) | Wait for Next Planning Cycle | Strategic Amendment | EDBs retain the life-expectancy stretch. An amendment is likely needed to clarify RMD commencement (age 21 for a minor child) but the core benefit remains. |
| Accumulation Trust (Tax inefficiency is severe) | HIGH PRIORITY | Amendment (to update tax provisions) | The trust should be amended to give the Trustee more flexibility (discretion) to pay out income to the beneficiary to avoid the punitive trust tax rates. |
This process often involves collaboration between the financial advisor and the estate attorney. Wealth.com simplifies this collaboration, ensuring that the necessary document changes are implemented efficiently and are tied directly to the client’s asset schedule.
By helping clients navigate this regulatory complexity, you demonstrate the firm’s commitment to comprehensive, modern estate planning. You ensure the client’s legacy is protected from unintended taxes and that their wealth transfer goals are ultimately met.
How Wealth.com Modernizes Regulatory Change for Your Firm
Wealth.com empowers advisors to close the regulatory gap and deliver compliant estate planning solutions at scale.
- Proactive Planning Workflows: The platform provides a structured, step-by-step workflow that guides advisors in identifying pre-2020 trusts and flagging them for mandatory review, turning a compliance risk into a structured planning opportunity.
- Intelligent Document Management: Wealth.com ensures that once a trust is updated, the new language and distribution instructions are securely recorded and seamlessly integrated with the client’s financial overview, creating a clear audit trail for the compliance team.
- Advisor-First Efficiency: By integrating estate planning intelligence directly into the advisor’s workflow, the platform enables you to efficiently communicate complex regulatory concepts like SECURE 2.0 without becoming a tax attorney, thus elevating your role as the trusted advisor.
By adopting Wealth.com, you deliver better client outcomes, reinforcing your firm as the trusted expert in securing wealth for the future.
Sources
- Carolina Estate Planning. What Is a Conduit Trust? and Why It Could Break or Protect Your Estate Plan.
- Charles Schwab. Inherited IRA Rules & SECURE Act 2.0 Changes.
- Fidelity Investments. Inherited IRA Withdrawals | Beneficiary RMD Rules & Options.
- IMARC. Digital Asset Management Market Size, Share, Trends and Forecast by Type, Component, Application, Deployment, Organization Size, End-Use Sector, and Region, 2025-2033.(Used for general market context).
- Wolters Kluwer. IRAs & Beneficiary Distributions: SECURE Act Updates.
