New Distribution and Taxation Rules for Inherited Retirement Accounts

by Harley K. Look, Jr.

Under the SECURE Act of 2019, effective for all retirement accounts inherited after December 31, 2019, the IRA stretch has been repealed, with few very limited exceptions, to raise an estimated $15.7 billion in tax revenue over the next decade.  A spouse named as the beneficiary of a retirement account still receives the tax benefits of an IRA spousal rollover, but for nonspousal beneficiaries, the IRA stretch is gone, so they are no longer allowed to take required minimum distributions over their life expectancies to minimize their income taxes or to allow their inherited Roth IRAs to continue to grow tax-free.  Rather, the general rule is that for any beneficiary other than a spouse, all retirement accounts, including any 401(k), traditional IRA and Roth IRA, must be distributed within ten years after the account holder passes away.

For taxable accounts, distribution will trigger income taxes, and if distributed all at once after ten years, will result in a large tax bill.  Many trusts have IRA stretch language to distribute only the required minimum distributions to help protect beneficiaries from commingling or spending their inherited retirement accounts.  There are no more annual required minimum distributions for most beneficiaries, so a beneficiary could receive nothing for ten years, then a lump sum in the tenth year.

Beyond naming a spouse, the very limited exceptions of eligible designated beneficiaries who may still take required minimum distributions are chronically ill or disabled beneficiaries, those who are no more than ten years younger than you, and your minor children, but not other  beneficiaries such as grandchildren, even if they are minors.  When any of these beneficiaries are no longer eligible designated beneficiaries, as for example when a minor child reaches the age of 18, the remaining balance of the retirement account must be distributed by age 28.

Although a spouse is still eligible for the benefit of a spousal rollover, the spouse can later change the secondary beneficiary to a new spouse or other beneficiaries.  Similarly, although most other beneficiaries, including trusts for their benefit, must pay taxes within ten years, they can then commingle or spend the remaining net after-tax retirement funds.  Please keep in mind that all benefits payable to a named beneficiary pass outside of any trust or will directly to the named beneficiary.

You may therefore want to consider naming your trust as the primary or secondary beneficiary to control the net funds after required minimum distributions to a spouse and the net funds after income taxes for other beneficiaries. It will be imperative for you to review and potentially amend your trust to help protect your retirement accounts.

Katz, Look & Onorato has been named as a finalist in the 17th Annual Mergers & Acquisitions Awards for Industrials Deal of the Year Category for Partner Brian Onorato's work on behalf of a client of the firm.

The firm is proud to congratulate Brian for his work on behalf of the firm's client.

Katz, Look & Onorato, P.C., is happy to congratulate Partner, Klaralee R.Charlton, who was recently appointed to the Board of Trustees for the Denver Bar Association.  Klaralee is a very active member of both the Denver Bar Association and the Colorado Bar Association.   Click Here to View the Article from "The Docket" - August/September, 2017


Katz Look & Onorato, Firm Newsletter, August 2017

 Click Here for Link

Katz, Look & Onorato, P.C.

June 2017 Newsletter Topics:   

Are Calls from the "IRS" Real ? by Klaralee R. Charlton

Are Your Kids Covered if You're Away ?  (What You Need to Know About a Colorado Power of Attorney For Temporary Guardianship of a Minor Child) by Tanja W. Leung)

Click link to view Newsletter: Link


Klaralee R. Charlton will be presenting during this Continuing Legal Education seminar through Stafford Publishing.


Form 1041 Reporting of Pecuniary Property-in-Kind Distributions: Tax Impact on Trusts and Estates

Tax Treatment of Formula Bequests, Distributions of Substitute Property to Satisfy Pecuniary Provisions, and Section 643(e) Elections

A live 110-minute CPE webinar with interactive Q&A

Wednesday, May 3, 2017 (in 5 days) 
1:00pm-2:50pm EDT, 10:00am-11:50am PDT

This webinar will provide tax professionals who advise fiduciaries in trust and estate matters with a thorough and practical guide to reporting pecuniary property-in-kind distributions from trusts and estates on Form 1041. The panel will discuss proper reporting for property substitutions to meet pecuniary bequests, pecuniary formulas, and available tax elections to optimally apportion gain recognition. The program will also offer specific illustrations of the tax calculations and reporting of property distributions to meet pecuniary designations.


A pecuniary bequest is defined as a grant of a specified sum of money from a trust or estate. In its simplest form, a pecuniary bequest consists of a distribution of an amount of cash or a specific asset designated in the trust or estate document. Payment of a pecuniary bequest represents an exception to the general rule that trust or estate distributions carry out estate income to the beneficiary to the extent of DNI.

However, when assets have to be sold to meet the pecuniary amount, or when the amount is specified as a formula, this can create significant tax issues for the trust. When an executor or trustee substitutes an asset for a property named in a will or trust, the income does not carry out to the beneficiary, and the gain is recognized at the fiduciary level. Similarly, in the case of formula pecuniary bequests, the language of the trust document or will determines the tax reporting treatment.

Formula pecuniary bequests also affect GST tax consequences in funding trusts and distributions to beneficiaries. As the federal estate tax exemption has increased substantially so that few U.S. estates are subject to estate taxation, NRA estates, with only a $60,000 U.S. asset exemption, deserve special care with pecuniary bequests being made to beneficiaries, especially ones with foreign beneficiaries.

Fiduciaries may elect to recognize gains on distributions at the estate or trust level with proper reporting. It is critical for tax advisers, trustees and estate administrators to understand the rules and planning opportunities of pecuniary bequests to avoid costly tax results as well as beneficiary challenges.

Our panel will provide tax professionals who advise fiduciaries in trust and estate matters with a practical and comprehensive guide for the tax treatment governing in-kind property pecuniary bequest distributions.


  1. Default rule for treatment of pecuniary bequest distributions
  2. Distribution of substitute property
  3. Sale of assets to satisfy pecuniary bequest distribution provisions
  4. Formula pecuniary bequests
  5. Using IRA or other IRD assets to satisfy pecuniary bequest
  6. Section 643(e)(3) elections


The panel will discuss these and other important topics:

  • What language in formula pecuniary bequest provisions will trigger gain recognition by the fiduciary?
  • Treatment of interest income on funding pecuniary bequests
  • Mechanics of sale/exchange treatment on distribution of appreciated property to satisfy a pecuniary bequest provision
  • Section 643(e)(3) election to recognize gain or loss on property distribution at the fiduciary level
  • Form 1041 reporting of in-kind distributions to satisfy pecuniary bequests

Learning Objectives

After completing this course, you will be able to:

  • Identify property distributions that do not qualify as pecuniary bequests that receive income carry-out treatment
  • Recognize the circumstances where it is advantageous to make a Section 643(e)(3) election for distributions of property
  • Discern the specific reporting requirements on Form 1041 for distributions of property other than identified assets to satisfy pecuniary bequests
  • Determine the proper reporting treatment for distributions of IRA amounts and other income in respect of a decedent (IRD) assets to satisfy pecuniary bequests


Lawrence H. McNamara, Jr., CPA, FVS, TEP
Bend, Ore.

Mr. McNamara has over forty years of experience practicing in the areas of trust, estate, gift and inheritance taxation. He has extensive trust and estate accounting and administrative services experience. In addition to consultation and tax preparation services, he successfully represents clients in tax audits and has been engaged as the U.S. agent to represent foreign trustees and executors in tax return filings and communications with IRS and other tax authority representatives. He also performs fiduciary accounting services for clients.

Klaralee R. Charlton, J.D., LL.M.
Katz Look & Onorato, Denver

Ms. Charlton practices fiduciary tax, estate administration, and business transactional law. As part of her practice, she guides clients through the process of administering an estate including the collection, valuation, management and transfer of assets including financial accounts, real estate, and business interests with a focus on minimizing estate and income tax liability. She also works closely with trustees of ongoing trusts to ensure compliance and prepares clients’ fiduciary income tax returns annually. She writes and lectures on topics including fiduciary income tax reporting and U.S. regulations governing the valuation of small family businesses.

Registration per Person for Live Event

Additional lines for this conference can be purchased at 25% off. For orders of five or more lines, further discounts will apply and will be automatically reflected in the cart.

Live Webinar $73.50

Includes 50% off with Special Offer

Live Webinar & CPE Processing $108.50

Includes Live Webinar 50% off with Special Offer

CPE per Person on Live Event

Continuing Professional Education credit processing is available for an additional fee. CPE processing must be ordered prior to the event. To qualify for CPE you may not listen via the telephone.

This program is eligible for 2.0 CPE credits. Click for NASBA details.

NOTE: CPE credit processing for all attendees must be ordered by 2pm Eastern the day of the program to receive a Certificate of Attendance within 24 hours.


Katz, Look & Onorato, P.C., proudly announces that Attorneys Krista K. Look and Klaralee R. Charlton were named Shareholders of the firm on April 14, 2017.  Please see their individual biographical sketches for detailed descriptions of their practice areas.  Both are happy to assist you with any of your legal needs.  You may reach them by calling our office at 303.832.1900


Top Tax Reminders for Seniors, by Klaralee R. Charlton

Click Here for Article


The Colorado Bar Association, Tax Section, is hosting a free workshop for small business owners.  Klaralee Charlton, of Katz, Look & Onorato, will be one of the panelists. 

Self-Employed Tax Workshop Saturday, February 4 • 10:30 am, Perrin Room Do you have a small business? Maybe you have a blossoming hobby or you’re an Uber driver or an AirBnB host? Join us for a free income tax workshop for small business owners. Tax attorneys from the Colorado Bar Association will answer questions and explain filing and reporting requirements for small business owners. For questions or to RSVP in advance contact Klaralee Charlton via email at This email address is being protected from spambots. You need JavaScript enabled to view it.

The Future of Estate Taxes and Trust Planning for 2017 and Beyond

by Harley K. Look, Jr.

After a tumultuous fifteen years of constantly changing estate tax laws, with no estate taxes whatsoever in 2010, and going from an estate tax exemption of $1.0 million up to $5.25 million in 2013, we are now in what appears to be a period of calm and stability with some sensible tax laws that are very generous and for now, permanent. How long this will last, no one knows, but the longer it lasts, the more we are encouraged.

With the presidential election over, we now have a better sense as to the estate tax laws for the next four years. Ms. Clinton would have tried to lower the exemption to $3.5 million, and raise the tax rates, but Mr. Trump said he is in favor of eliminating the estate tax. We don’t know that he will be successful, but even if he isn’t, then the exemption will continue to increase with inflation, but not decrease, so for 2017, the estate tax exemption will be $5.49 million, and with portability1 by filing a timely estate tax return, married couples may be able to shelter a combined $10.98 million, without a trust.

Consequently, it’s critical that you review your estate plan to take into consideration the current tax laws and other changes in the law. There have also been a lot of state law changes impacting your financial powers of attorney, medical powers of attorney and living wills.

Under the current tax laws, there is an opportunity to amend your trust to provide the best income tax benefits to your beneficiaries. Most trusts sacrificed income tax benefits in order to achieve estate tax benefits, but everyone prefers to have their beneficiaries pay lower long term capital gains taxes somewhere down the road after they’re gone instead of estate taxes at their deaths.2

Now, under today’s tax laws, most clients are electing to change their trusts and their beneficiaries are getting better income tax benefits without any estate taxes, but each case depends on the facts, so it’s important for you to review the impact of the laws on your personal estate plan to see what changes, if any, you may want or need.


For a discussion on portability and the nontax benefits of trusts, please refer to the following article in this website’s News Section:

For a discussion as to trusts eliminating estate taxes, but losing capital gains tax benefits, please see the following article in this website’s News Section:


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