For advisors: SECURE Acts mean thinking differently about estate planning and charitable giving

When Congress passed the SECURE Act in 2019 and SECURE 2.0 in 2022, the expressed goal was to make it easier for Americans to save for retirement (SECURE stands for “Setting Every Community Up for Retirement Enhancement.”) But the laws also represent a significant shift in how retirement accounts (like IRAs) are handled after an account holder’s death, by limiting how long most non-spouse beneficiaries can stretch distributions from inherited retirement accounts.

Post-SECURE Act, having a strategic plan matters more than ever. Families and their advisors need to rethink how they structure their estate plans, paying closer attention to the type of assets being passed down, and letting those assets help guide who inherits what. Getting this wrong or ignoring it altogether could have significant implications for the next generation. Additionally, when assets are earmarked for charity, a flawed approach can mean less money reaching the intended causes.

Many people think about their estate the same way you’d cut a pie: slice it up proportionally, giving each beneficiary and each charity their share. But under the SECURE Act, the type of asset matters just as much as the size of the slice. For instance, traditional IRA assets can be among the least tax-efficient assets to leave to family and, conversely, among the most tax-efficient to leave to charity. That’s because distributions from a traditional IRA are generally taxed as ordinary income. Under the SECURE Act, most non-spouse beneficiaries must generally empty an inherited IRA by the end of the 10th year after the original owner’s death, rather than stretching distributions over their own life expectancy. That can compress taxable income into a much shorter window, often during a beneficiary’s peak earning years, and may push some recipients into materially higher tax brackets.

Consider a family that wants 90% of an estate to pass to children and 10% to charity. Simply naming each beneficiary for the same percentage of every account may not produce the best after-tax result.

Leaving traditional IRA assets to a qualified charity, however, can be particularly effective because a tax-exempt charity generally can receive the distribution without the income-tax burden an individual beneficiary may face. If a client wishes to leave part of an estate to charity, one strategy we often explore is using traditional IRA assets to satisfy that charitable intent while preserving more Roth and taxable investment assets for family. Qualified Roth distributions are generally income-tax-free, while inherited taxable assets generally receive a step-up in basis to match the fair market value on the date of death, greatly reducing the burden of capital gains taxes (subject to applicable tax rules and exceptions). The result can be a more tax-aware allocation of the same overall estate, with less value lost to income taxes.

Taking a strategic approach to philanthropy

For those who are charitably inclined, thoughtful charitable giving strategy has always been a valuable part of estate planning. Post-SECURE Act, it has become even more critical. Planning ahead can help preserve more for the causes one supports while making more intentional use of available tax rules.

When it comes to charitable giving, there are a few tools worth noting:

• Qualified Charitable Distributions (QCDs). QCDs allow eligible IRA owners age 70½ or older to direct distributions from an IRA to qualifying charities. When the requirements are met, the distribution is generally excluded from taxable income and can count toward a required minimum distribution (RMD) once the owner is subject to RMDs. QCDs can therefore support charitable giving right away — allowing donors to see the impact of their generosity firsthand. SECURE 2.0 also created a limited one-time opportunity to use a QCD to fund certain charitable gift annuities or charitable remainder trusts, subject to specific requirements.
• Donor-Advised Fund (DAF). A DAF is created when a donor makes an irrevocable contribution to a sponsoring charitable organization and may retain advisory privileges over how the fund is invested and which charities ultimately receive grants. For donors with appreciated assets or publicly traded securities, contributing those assets or securities rather than selling them first may allow the donor to avoid realizing the embedded capital gain and may also generate a charitable deduction based on fair market value, subject to applicable rules and limitations. When funding a DAF with stock, donating concentrated positions can be a smart way to rebalance the makeup of your portfolio – and allows philanthropic dollars to grow further and grants to charities to be made over time.

When we work with clients in building their charitable giving plan, we’ve often found it valuable to bring in philanthropy advisors from the New Hampshire Charitable Foundation who can help lay out options for achieving charitable goals that clients might not have considered on their own.

Starting and sharing the conversation

Inviting the next generation to the table and having these conversations as a family can be rewarding for many reasons — it not only helps everyone understand the strategy, but also allows a forum for values, wishes, and concerns to be addressed so everyone is on the same page. These conversations can also help family members understand why different beneficiaries may receive different types of assets even when the intended economic shares are similar.

Perhaps even more important is the spirit of philanthropy these conversations can foster within the family. When parents make charitable giving part of their estate plan, they’re modeling their values for the next generation. That’s a legacy even greater than a monetary gift.

The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. The information contained herein is for informational and educational purposes only and should not be construed as investment, legal, tax, or accounting advice. Neither the information provided nor any opinion expressed constitutes a solicitation to buy or sell any security or investment product. Tax laws and regulations are subject to change, and the impact of tax, charitable giving, and estate planning strategies will vary based on individual circumstances. References to specific planning techniques or tax considerations are provided for educational purposes only and may not be appropriate for all individuals. All investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results. Readers should consult with their financial, legal, and tax professionals regarding their specific circumstances before making any financial decisions. Steward Partners, its affiliates, and its Wealth Advisors do not provide tax or legal advice. Securities are offered through Steward Partners Investment Solutions, LLC (“SPIS”), registered broker/dealer, member FINRA/SIPC. Investment advisory services are offered through Steward Partners Investment Advisory, LLC (“SPIA”), an SEC-registered investment adviser. SPIS, SPIA, and Steward Partners Global Advisory, LLC are affiliates and collectively referred to as Steward Partners.