Author Archives: Joe Thiegs

• Some Charitable Gift Annuities May Fail 10% Charitable Remainder Test with Low Section 7520 Rates in June

  June 2, 2020 7:24 pm Leave a Comment

  By Joseph K. Thiegs, J.D., FCEP
  June 2, 2020

  The IRS announced a new record-low Section 7520 rate for June 2020, at 0.6%. See https://www.irs.gov/businesses/small-businesses-self-employed/section-7520-interest-rates. This rate is published monthly by the IRS and is used to determine the value of annuities, life estates, income interests, and remainder interests for certain transfers, including charitable split-interest gifts. While these record-low rates provide unprecedented high charitable deductions for gifts with retained life estates and charitable lead trusts, one downside–besides lower charitable deductions for charitable gift annuities and charitable remainder trusts–is the potential for charitable gift annuities and charitable remainder trusts to fail the requirement that at least 10% of the actuarial value of the contribution must be designated to charity. (Additionally, charitable remainder annuity trusts must pass a probability of exhaustion test, which prohibits a charitable deduction for CRATs where the actuarial probability that the trust will be exhausted before the end of the trust term is 5% or greater. The low Section 7520 rate puts some limits on permissible CRATs too, but we’re focusing here on CGAs because they’re so much more common.)

  The risk primarily applies to gift annuities with payouts at the American Council on Gift Annuities (“ACGA”) maximum recommended rates currently in effect (as of June 2020) that are issued for annuitants below certain ages. Because a donor can elect to use the Section 7520 rate either for the month of the gift or either of the two prior months, a CGA for a younger annuitant may warrant taking advantage of that election to make sure that the CGA qualifies for a deduction, or to increase the deduction if desired. The following charts show the annuitant ages, payout rates, and Section 7520 rates (for April, May, and June 2020) at which the 10% charitable remainder test becomes a potential or actual issue.

  

  

  (If anyone wants to double-check my results and if there are corrections to be made, please let me know.) Note that this is an issue really only for rather young annuitants (or, potentially, for CRTs with unusually high payouts, not illustrated here). Many nonprofits that issue gift annuities have age minimums above the ages at which CGAs begin to fail qualification. Still, the gift acceptance policies for many other organizations do allow for one-life gift annuities starting lower ages–at age 55, for example–or two-life gift annuities at age 60, either of which could be a problem in the current interest rate environment.

  Please also note that the ACGA is recommending new maximum rates for gift annuities, effective July 1, 2020. See https://www.acga-web.org/gift-annuity-rates. The new table for one-life gift annuities has been published, and while I did not test every age and rate, a significant sampling of ages and rates down to age 10 showed no failures with CGAs using a Section 7520 rate of 0.6% or higher under the new July 2020 recommended rates. Kudos to the good folks on the ACGA Rates Committee and Board for this update! The new two-life recommended rates table is expected to be made available sometime next week.

  For conversations about gift annuities with donors this month, though, be aware of the potential issue for annuitants on the younger side. Make sure to double-check illustrations and communicate early if there are any deduction problems using any of the available Section 7520 rates. Many donors will be willing to accept a lower annuity rate, resulting in a larger deduction and ultimate gift to your charity, if you explain and ask. (It’s probably a good idea to discuss it with your managers and/or CFO first, but they should be in favor because it means lower risk and larger gifts.) As my good friend Pam Davidson is fond of saying, remember that the ACGA recommended rates are maximum rates, not minimums.

  The upcoming decrease in CGA rates is a relatively rare opportunity to encourage donors to consider establishing gift annuities before the end of the month. At the same time, it’s important to be aware of this potential trap for the unwary, and to help your donors avoid any unhappy surprises. In this unsettling time, it’s more important than ever to look out for each other.

  Questions and corrections to this article are welcome. If you have any questions related to planned giving or charitable estate planning, or if your organization could use any help with planned giving or endowment, please contact Joe at joe@generoworks.com. If you’d like to learn more about a highly effective values-based estate planning program for your donors through Thompson & Associates, contact Joe at jthiegs@ceplan.com.

• COVID-19 and CARES Act Update to SECURE Act Article

  5:27 pm Leave a Comment

  April 7, 2019

  COVID-19 UPDATE AND NOTE:

  With uncertainty and changing landscape amid the COVID-19 pandemic, nonprofit organizations should exercise even higher than ordinary thoughtfulness and sensitivity in determining whether and when to send donor communications, including planned giving messaging.  Many public media stations are postponing or reviewing current planned giving messaging to avoid upsetting supporters and others who may be particularly sensitive to messaging regarding estate planning.

  Additionally, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27^th, 2020.  This landmark legislation included some provisions related to or affecting charitable giving.  The expanded provisions for Economic Injury Disaster Loans could be make-or-break for some organizations but have a more indirect effect on charitable giving.  Three other pieces of the CARES Act relevant to charitable giving are:

  • The above-the-line deduction of up to $300 for non-itemizers (people who take the standard deduction on their income tax returns) who make cash gifts to qualified charities.  This is a new incentive for a large number of individuals to make cash gifts to charity, where before they received no tax benefit from charitable giving.
  • The temporary increase of the 60% of adjusted gross income (“AGI”) deduction limitation to up to 100% of AGI for cash gifts to charities.  This means that donors making large cash gifts can completely offset their income for 2020.
  • The suspension of required minimum distributions (“RMDs”) from qualified retirement accounts in 2020.  This could mean that some people who otherwise would have made qualified charitable distributions (“QCDs”) from their IRAs this year might not.

  If you decide to create messaging for your donors about either the CARES Act or SECURE Act changes, it may be advisable to combine them into one, with a theme in the vein of “recent changes in the law affecting charitable giving” and hit on key points of both.

• The SECURE Act: What Charitable Giving Professionals Ought to Know

  February 6, 2020 11:19 pm 2 Comments

  by Joseph K. Thiegs, J.D., FCEP

  February 6, 2020 (last updated February 8, 2020)

  By now you’ve likely heard about the SECURE Act, and maybe know a little about it.  Titled consistently with the painfully common Congressional penchant for semi-clever acronyms, “SECURE Act” is short for “Setting Every Community Up for Retirement Enhancement Act of 2019.”  The SECURE Act was signed into law by the President on December 20, 2019, as Division O of the Further Consolidated Appropriations Act, 2020.[1]  It consists of approximately 46 pages near the end of the larger 715-page bill.[2]

  Now, you probably are saying to yourself, “Gee, it sure sounds like a lot of fun to read 46 dense pages of Internal Revenue Code amendments and cross-references, but I’ve got other things to do…like go to the gym, make dinner, and watch The PBS NewsHour!”[3]  In that case, you are fortunate to be reading this article which, while not nearly a complete SECURE Act analysis, provides a basic overview of provisions most likely to affect charitable giving, and tips for nonprofit development staff in working and communicating with their donors.[4]

  Here’s the TL;DR[5] synopsis:

  There are three changes that most affect charitable gifts and gift planning:

  • The age for required minimum distributions (RMDs) from qualified retirement accounts is raised to 72 for donors turning 70½ in 2020 and beyond.
    • This did not change the minimum age for qualified charitable distributions (QCDs) from IRAs, which remains 70½.
    • Individuals who reached age 70½ in 2019 or earlier still must continue to take RMDs even if they are not yet 72.
  • The age restriction on contributions to IRAs is lifted, but that came with a corresponding rule that reduces eligibility for QCDs by the aggregate amount of post-70½ IRA contributions.
  • The “stretch” payout option for designated beneficiaries of qualified retirement accounts is largely eliminated and changed to a 10-year withdrawal window for most non-spouse beneficiaries.

  As a result of these SECURE Act provisions:

  • People have more incentive than ever to give IRA and other qualified retirement account assets to charity, because now it is a little less appealing to designate those assets to family or other individuals in many cases.
  • Qualified charitable distributions (QCDs) from IRAs remain attractive, perhaps more than ever, but the rules regarding QCDs just got more complicated and could trip up those who aren’t paying attention.
  • Charitable remainder trusts (CRTs) funded with retirement assets at death are a potential solution to at least one of the planning problems caused by the recent changes.  While it’s important to understand that and propose it as an option for donors in appropriate circumstances, be careful not to over-focus on CRTs, as they will be considered by a relatively small percentage of donors.
  • A bigger opportunity is beneficiary designations of qualified retirement assets made directly to charity at death, which deserves more marketing and should be discussed with donors more broadly.

  Now for a somewhat more in-depth look for those who want to know more.

  Minimum age for Required Minimum Distributions raised to 72 (for most)

  Until January of 2020, owners of qualified retirement accounts (IRA, 401(k), 403(b), etc.) had to start taking required minimum distributions (RMDs) from their retirement accounts starting with the year in which they turned 70½.[6]  Notably, the SECURE Act increased the starting age for RMDs to 72 for individuals who had not yet turned 70½ by December 31, 2019.[7]  The latter part is an important nuance.  Some commentators have been making blanket statements that qualified plan owners now don’t have to take RMDs until age 72, which is misleading, because the new law only applies to qualified plan account owners who were not already 70½ before the end of 2019.[8]  Those who turned 70½ in 2019 or earlier (i.e., those born on 6/30/1949 or earlier) still are and will be required to take RMDs from their accounts, even though some of them may be under age 72.

  Why does this change matter to charities?  Some have been concerned about a potential decrease in IRA QCDs.

  A slight but important contextual detour:  Many of you are familiar with QCDs.  However, as a primer for those who are not or as a refresher for those who are, a qualified charitable distribution is a special kind of charitable gift that is:

  • made from an IRA (traditional or Roth[9] IRA only; gifts from 401(k)s, 403(b)s, or ongoing SEP or SIMPLE IRAs don’t count);
  • distributed directly from the IRA to a qualified public charity (donor advised funds, private foundations, and supporting organizations are not eligible recipients);
  • from an IRA owner who is age 70½ or older at the time of distribution;
  • not more than $100,000 per year from any individual donor (married couples may be able to give up to $200,000 per year);
  • not given in exchange for any quid pro quo (e.g., no charitable gift annuities, charitable remainder trusts, or thank-you items); and
  • otherwise an income tax-deductible gift for the calendar year, if not for the special QCD tax treatment.[10]

  A QCD is excluded from the donor’s gross income, and therefore is not tax-deductible.  For some donors, the tax result would be the same whether a gift from their IRA is classified as a QCD and excluded from income or whether it’s a tax-deductible gift first recognized as income and then taken as a charitable deduction—it’s a wash or the same outcome either way.  However, for many other donors, the QCD offers a few potential advantages:

  1.         A QCD allows donors to get a tax benefit from charitable giving even when they do not itemize deductions.  Now that the standard deduction has dramatically increased as a result of the Tax Cuts and Jobs Act of 2017,[11] even fewer taxpayers have enough itemized deductions[12] to surpass their standard deductions, so it makes more sense for them to take the standard deduction instead.  For those people, it’s a great idea:  QCDs give non-itemizing donors a tax break for charitable giving that they wouldn’t get for a regular charitable gift.  Thinking about it another way, a QCD provides a tax benefit akin to an extra deduction on top of the standard deduction. Also, because the special tax treatment reduces gross income, a QCD can help keep non-itemizers in a lower income tax bracket, thus saving additional tax, when an RMD or other IRA distribution would have bumped them up into a higher marginal tax bracket.

  2.         Another tax advantage of a QCD can apply whether or not the donor itemizes. Some deductions, credits, and other tax benefits are based on adjusted gross income (“AGI”) and phased out at higher income levels, so having a lower AGI preserves more of those tax-saving benefits.  As such, QCDs and other “above-the-line” deductions and reductions that lower AGI typically are more valuable to a taxpayer than “below-the-line” deductions such as regular charitable gifts or the standard deduction.

  One more aspect of QCDs donors appreciate is that QCDs count toward RMDs, to the extent distributions haven’t already been made from retirement accounts in a given year.

  Okay, with that information, let’s return to the SECURE Act.  You probably noticed that the minimum age for a QCD is the same as the beginning age for RMDs before the SECURE Act:  70½.  While the SECURE Act increased to 72 the age when RMDs begin, it did not increase the minimum age for QCDs, which remains 70½.[13]  The reason for concern among some development professionals is a worry that QCDs will decline among people between the ages of 70½ and 72 because it is feared donors either (a) will wait until age 72 to start making QCDs because they don’t have to take RMDs until then, and/or (b) mistakenly will think they can’t make QCDs until they’re 72 or won’t realize they can make QCDs starting at 70½.  While there certainly could be some drop-off, if qualified public charities do a good job of messaging to their donors near or in retirement, and if the stock market stays strong,[14] they can end up with even more QCDs than ever before.  This is a matter of marketing and education.

  Why should charities not be too worried about the effect of the postponement of RMDs to age 72 with respect to QCDs?

  For one thing, donors who turned 70½ in 2019 or earlier still have to take RMDs (or make QCDs instead) and have no disincentive to starting or continuing QCDs if they’re charitably inclined.  Similarly, those who are 72 or older will notice no change on that front.  For younger donors—those born on or after July 1, 1949—there remains a window of 1½ years between the minimum age for QCDs and the age for RMDs.  The author’s observation, based on personal experience since 2006 when the QCD first became available, is that the primary motivation of most QCD donors is not to avoid their RMDs—it’s to support missions and organizations that they love.  Satisfying the RMD is a nice benefit, but not the purpose.  (And, as a reminder, anyone who has an IRA RMD still can satisfy it—or at least part of it—with a QCD.[15])

  Additionally, for the people who are not yet 72 but still can make a QCD—in other words, they’ve reached 70½ and own an IRA—it’s a pool of assets now available for charitable giving at zero tax cost (up to $100,000 per year).  Furthermore, QCDs made before RMDs begin at age 72 will reduce the size of the first and later RMDs, because account values will be smaller as a result of the charitable distributions between age 70½ and 72.

  The key, as ever, is regular communication to donors ages 70+ about the opportunity.  The recent law changes do introduce more complexity, but that can be finessed in donor messaging.  One example:  “The age for required minimum distributions from IRAs has been raised to 72 for some IRA owners.  But did you know you still can make a tax-free gift to [qualified public charity’s name] from your IRA with other possible benefits starting at age 70½?  For more information, contact . . . .”

  A possible trap for the unwary

  One troublesome effect of the SECURE Act stems from a provision that widely is seen as positive:  Individuals now can make contributions to their IRAs at any age, lifting the prior restriction that prohibited contributions by those over age 70½.[16]  However, to prevent a double tax benefit (sometimes referred to as “double-dipping”), the same Act section also adds a provision that reduces the amount that can count as a QCD if the donor has made a contribution to an IRA after age 70½ and then took a deduction for that contribution.[17]

  While that seems to be the right result from a tax policy perspective, in practical terms, this means that the donor or the donor’s tax preparer will have to keep a running total of deductions for post-70½ IRA contributions and corresponding reductions in QCDs.

  Example:  Forrest Gump, age 75, hears about the SECURE Act change that now lets him make additional contributions to his IRA.  He still makes a decent amount of earned income mowing lawns, which he enjoys.  In 2020, he contributes $5,000 to his IRA, which he deducts on his income tax return, and does the same in 2021.  In 2022, Forrest wishes to make a gift of $12,000 to a qualified public charity for hurricane relief, and directs his IRA custodian to make the distribution.  Because of the two contributions of $5,000 in 2020 and 2021, his QCD in 2022 is limited to $2,000, and the remaining $10,000 would be recognized as income (for which, presumably, he could take an offsetting charitable deduction if he itemizes, subject to AGI and other usual limitations).

  This presents a problem for donors who may be used to making QCDs and are unaware of this new reduction based on aggregate contributions.  The good news is that it’s likely to apply only to a relatively small number of donors.  The bad news is that charities generally will have no way of knowing which of their donors have made and deducted post-70½ IRA contributions.  One recommendation is to add language to your organization’s QCD receipts[18] similar to the following:  “If you have made contributions to an IRA after age 70½, consult with your professional tax advisor to determine how your circumstances might be affected.”  That language at least alerts donors that there may be an issue if they have made such contributions.

  Partial elimination of stretch payouts from retirement plans as an opportunity for nonprofits

  Prior to the SECURE Act, one of the distribution options available to individual non-spouse designated beneficiaries of an IRA or other qualified retirement account at the death of the account owner was to receive distributions over the course of the rest of the beneficiaries’ lives, using their own life expectancies to determine the RMDs.  This option was known as the “stretch” option, and a significant amount of retirement account planning has been done on the assumption that designated beneficiaries[19] would elect that option.  The SECURE Act eliminates the stretch option for most beneficiaries, and now requires that, with certain exceptions,[20] qualified retirement accounts now must be distributed to beneficiaries within a 10-year period, for account owners dying in 2020 or later.[21]

  So, why does this matter to charities?

  Well, having to distribute all of the retirement account assets within 10 years means having to recognize all of those distributions as ordinary income in a timeframe most likely shorter than if distributions were taken in smaller amounts spread out over a beneficiary’s life expectancy, possibly 20, 30, 40 years, or more.  As a result, it also means (a) the possibility of more taxes paid by individual beneficiaries, and (b) faster than intended distribution to individual beneficiaries when the account owners wanted payments spread out over a longer time for non-tax purposes (for example, a beneficiary with a propensity to spend money in undesirable ways, or who might be subject to creditors or various negative influences).  Fortunately, one of the principal solutions to the potential dilemma faced by retirement account owners who want to provide benefits to children (or others) for longer than 10 years and reduce taxes has a charitable component:  a Charitable Remainder Trust (CRT).[22]

  To review, a donor establishes a CRT by contributing property to a trustee under a trust agreement or other trust instrument, like a will.  The trust provide an income stream for one or more individual beneficiaries for their lives, a term of up to 20 years, or a permissible combination of their lives and a term of up to 20 years.  After the end of the trust term, the remaining trust funds (the remainder) is distributed to one or more charitable beneficiaries as designated by the donor in the trust instrument.  A CRT can provide either a fixed dollar amount each year (a Charitable Remainder Annuity Trust, or CRAT), or a percentage of the trust assets, revalued annually (a Charitable Remainder Unitrust, or CRUT).  For a variety of reasons,[23] most CRTs are CRUTs.

  While a CRT may be established and funded either during life (lifetime or inter vivos) or at death (testamentary), generally it is a bad idea from a tax perspective to use qualified retirement account distributions to fund a CRT during life.  Use of a testamentary CRUT (TCRUT), however, addresses multiple concerns raised by the SECURE Act changes to the available retirement account withdrawal period.  A donor can designate a TCRUT as the beneficiary of retirement accounts at death,[24] provide income for loved ones for 20 years or for life, and then after the end of the 20 years or after the income beneficiaries’ lives, the remainder goes to the donor’s designated charity.

  Example:  Holly Golightly, widowed and age 78, has designated her children as beneficiaries of her 401(k) account.  She learns that, under the SECURE Act, all of the account assets must be withdrawn within 10 years of her death with significant income taxes due, but she wanted her kids to benefit for a longer time (and further reduce taxes).  Thanks to a savvy new neighbor in her Manhattan brownstone building, she learns about TCRUTs and decides to include one with a 20-year term and a 5% payout, funded with the beneficiary designation from her 401(k), as part of her next estate plan update.  After Holly’s death, her 401(k) assets, then worth $400,000, are distributed to the trustee of the CRUT.  There is no immediate income tax payable, and her estate receives a charitable estate tax deduction for the gift portion of the transfer.  Her children start receiving 5% of the trust assets each year for the next 20 years, with an initial annual payment of $20,000.  Assuming the trust investment return, after administrative costs, also is 5% each year, at the end of the 20-year term the children will have received payments totaling $400,000, and $400,000 will be distributed to Holly’s favorite charities for poverty relief in New York.

  This is a valuable tool in the toolbox.  Many donors, though, don’t feel the need to dictate stretch payments to adult children over more than a decade.  As a practical matter, even if the parent assumes or hopes their children will do the tax-savvy, fiscally prudent thing and stretch payments out as long as possible, many times–perhaps most of the time–beneficiaries decide “I’d rather have it all now,” or spend it down more quickly than the parent would’ve recommended, regardless of the tax implications.[25]  As such, parents truly concerned about ensuring a longer distribution period, either to provide for a loved one with trouble managing money or for other reasons, should be thinking about establishing a trust or trusts.

  For most donors, a simpler solution to reduce taxes is to provide for family with assets other than retirement accounts (for example, home and other real estate, non-retirement investment accounts, life insurance, etc.) and designate retirement accounts directly to their favorite charities.  If non-retirement assets aren’t sufficient for what donors want to leave for their families, they still can designate a percentage of their retirement accounts to charity, and leave the balance to family.  Or, the donor can designate part directly to charity, and part to a TCRUT for family. There are many options, but the main point is that qualified retirement assets generally are the best, most tax-smart assets to leave to charity at death, both before and after the SECURE Act.  The SECURE Act provides a good excuse to talk with donors about that.  For many people, their retirement accounts are their largest assets, and nonprofits not messaging to their supporters about including the nonprofit as a designated beneficiary are leaving a huge amount of potential gift revenue on the table.

  Recommendations for Nonprofits

  Among the steps for your organization to consider:

  • Review your Planned Giving and IRA QCD web pages, as well as brochures, one-pagers, and any other donor-facing materials, and update for accuracy as necessary in light of the SECURE Act.
  • Review IRA QCD receipt templates for appropriate language, and consider adding a brief mention of post-70½ IRA contributions to flag a possible issue for donors who have made such contributions.
  • Increase communications to donors encouraging consideration of IRA QCDs (donors age 70½ or older) and making your charity a designated beneficiary of retirement accounts (all donors).
  • For more established and sophisticated Planned Giving programs, increase communications with older donors about life-income gifts (charitable gift annuities and CRTs) generally.  The benefits of TCRUTs as a possible solution for those affected by the SECURE Act changes can be raised in this context.
  • Use the SECURE Act as a good reason to get in touch with donors, but don’t get too technical in communications.  Simple, broad messaging with an invitation to a conversation is great.  You can include links to more information for those who want it, or an offer to send more detailed explanations.
  • Make sure not to give or appear to give specific legal, tax, or financial advice, and do encourage donors to check in and talk with their professional advisors.  Now is a prime time for many donors to be reviewing their plans, and you want your organization to be in their thoughts as they do.

  Every once in a while, changes in tax law present not just new challenges, but opportunities, and this is one of those times.  The SECURE Act, like other past changes, can result in more and bigger gifts to charitable organizations if we just keep doing what we always should be doing:  listen; find ways to address donors’ needs, concerns, and goals; communicate well; help donors realize and accomplish philanthropic dreams that are a reflection of their personal values; and share stories of our organizations’ missions and benefits to those our organizations serve.  If we do those things, we all will be more secure.

  ---

  [1] H.R. 1865, which became Public Law No. 116-94.  The bill passed 297-120 in the House, and 71-23 in the Senate.

  [2] See Further Consolidated Appropriations Act, 2020, H.R. 1865, 116^th Cong. Div. O (2019) [hereinafter “SECURE Act”], https://www.congress.gov/116/bills/hr1865/BILLS-116hr1865enr.pdf

  [3] Requiescat in pace, Jim Lehrer (May 19, 1934 – January 23, 2020).

  [4] It also is entirely possible that you would be more fortunate if you were reading something other than this article, but here we are.

  [5] Too Long; Didn’t Read.

  [6] Prior to the SECURE Act, the required beginning date (RBD) generally was April 1 of the year following the calendar in which the account owner turns 70½, or, for certain accounts like 401(k) and 403(b) accounts, April 1 following the year of retirement, if the account owner remains employed past age 70½.  See https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

  [7] See SECURE Act § 104.

  [8] See id. § 104(d) (“The amendments made by this section shall apply to distributions required to be made after December 31, 2019, with respect to individuals who attain age 70½ after such date.”)

  [9] While a QCD from a Roth IRA technically is permissible, it usually doesn’t make sense to use that asset for charitable giving if other assets are available, because distributions from a Roth IRA generally are tax-free.

  [10] See generally Internal Revenue Code § 408(d)(8).

  [11] The standard deduction is $12,400 for single or separate filers and $24,800 for married joint filers in 2020.

  [12] Including, for example, charitable gifts, mortgage interest, student loan interest, state and local taxes, and certain other expenses, subject to limitations.

  [13] This is a good thing.

  [14] A significant market decline would be a much bigger concern, with much greater potential for gift decline than concerns based on changes to the law from the SECURE Act.

  [15] Someone with an RMD larger than $100,000 could satisfy the first $100,000 of the RMD with the QCD.

  [16] See SECURE Act § 107(a).

  [17] See id. § 107(b).  That subsection reads:

              (b) Coordination With Qualified Charitable Distributions.—Add at the end of section 408(d)(8)(A) of such Code the following:  “The amount of distributions not includible in gross income by reason of the preceding sentence for a taxable year (determined without regard to this sentence) shall be reduced (but not below zero) by an amount equal to the excess of—

              “(i)  the aggregate amount of deductions allowed to the taxpayer under section 219 for all taxable years ending on or after the date the taxpayer attains the age 70½, over
              “(ii)  the aggregate amount of reductions under this sentence for all taxable years preceding the current taxable year.”.

  [18] You do have receipts for QCDs that are different from your regular gift receipts, don’t you?  If not, you should—get on it right away!  Also, as a reminder, it’s never a bad idea to include a general disclaimer that your organization is not providing any legal or tax advice, and urging donors to consult with their independent professional advisors to determine how their charitable gifts affect their tax situations.

  [19] Typically adult children.

  [20] Exceptions include a designated beneficiary who is a surviving spouse, a child of the account owner who has not reached the age of majority, a person who is disabled or chronically ill, or is not more than 10 years younger than the employee/account owner.  See SECURE Act § 401(a)(2)(E)(ii).

  [21] See SECURE Act § 401.

  [22] A charitable gift annuity (CGA) funded with retirement assets at death may be another good option in certain circumstances.  However, because of some limitations of a CGA, such as the number of beneficiaries (1 or 2) and administrative challenges with potential multiple distributions from one or more retirement accounts, a CRUT provides greater flexibility.

  [23] Some reasons people often choose CRUTs instead of CRATs include the possibility of increased payments over time, preserving purchasing power as a hedge against inflation, reducing likelihood of exhausting the trust, and allowing for multiple additions to the trust, among other things.  Also, those who are interested in the features of a CRAT often instead establish a charitable gift annuity (CGA) which has similar benefits but is simpler and has less administrative cost to the donor.

  [24] A CRT intended to be funded by assets at death can be created either by establishing a standalone CRT agreement during life, initially funding it with a nominal amount (e.g., $10) and then fully funding it by beneficiary designations or other gifts at death, or CRT provisions can be included in traditional estate planning documents like a will or revocable trust agreement.  Different estate planning attorneys have different opinions on the preferred way to do it but, in most jurisdictions, either approach generally works.

  [25] If you have children or parents—or know anybody who does—is this really a surprise?  It’s human nature to believe we understand the best way to allocate resources for our own benefit better than anyone else, including our parents.

  ———

  Notice:  While all information in this work is intended to be factual and correct, errors may appear (if so, please bring them to the author’s attention via e-mail at joe@generoworks.com).  Nothing in this work constitutes legal, tax, or financial advice, nor should it be construed as legal, tax, or financial advice to any individual or organization.  To determine how information mentioned in this piece might apply to or affect your specific circumstances, consult with your own independent professional legal, tax, or financial advisor.  Opinions expressed are those of the author and not necessarily of any partner or affiliated organization.  Reproduction or distribution of this work in whole or in part is permitted only with the prior approval of the author.

  © 2020 Joseph K. Thiegs and Generoworks LLC
  

• New Website

  September 29, 2019 6:57 pm Comments Off on New Website

  Generoworks just launched a new website!