There are 9.5 trillion reasons why charities should be paying attention to IRA accounts. That is the amount that is estimated to have been in IRA accounts as of the Third Quarter of 2018.* With the IRA charitable rollover (technically known in the financial planning community as the Qualified Charitable Distribution or QCD) now being a permanent part of the tax law, gift officers should be targeting IRA accounts for major outright, planned, and blended gift commitments. But these gifts do not come without complexities. Gift officers should educate themselves to have a basic knowledge of what is permitted, what is strictly prohibited, and when to say, “Consult your advisor.” As you read the Dos and Don’ts below, be vigilant of not crossing the red line of giving the donor tax or legal advice – a red line that often can be difficult to navigate.
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U.S. equity markets were volatile in 2018, with abrupt and substantial fluctuations both up and down. There are conflicting data that investors must reconcile. On the one hand, unemployment is at historic lows and economic growth and corporate earnings support investor confidence. On the other hand, increases in interest rates suggest the possibility of resurgent inflation, while continued uncertainty around trade policy and strained relations with some of America’s closest allies raise concerns for all investors. The Dow plunged 1,883 points in the six days before December 24 and the S&P 500 was off 20% from its high in September. Equities then rallied at the end of December and the beginning of 2019. There are indications that markets have now calmed, at least for the moment.
Almost every organization, both non-profit and for profit, has some tale that becomes part of the mythology of the organization, often shared at parties and other celebratory events. PG Calc is no exception. A PG Calc client support staff member announced to her colleagues one morning, “Last night I had a dream that a charity client asked if they could fund a gift annuity with a sandwich?” Laughter ensued followed by erudite discussion. Would it make a difference if it was a peanut butter and jelly sandwich or a sandwich rich with Beluga caviar? A sandwich from a neighborhood deli or a restaurant with a five-star rating? The broader question is just what assets can be used to fund a charitable gift annuity?
There are different factors that determine when a gift has been completed. But why does it matter, since in most cases it’s just the matter of a few days? That day can make a difference at any point in the year, by changing what discount rate is used for calculating the deduction or in determining the amount of a pro-rated first gift annuity payment. However, it is particularly significant– to many of your donors – at year-end, as it affects when they can take their charitable deduction. A day late, a gift made on January 1st rather than December 31st, and the deduction is “lost” for a year.
Working in the Gift Planning office can be a high-stakes game. You need to make judgment calls on the “tough gifts.” There can be multiple issues in the gift acceptance process, including managing donor relations.
Everyone needs to go to the doctor for a checkup now and again. The same can be said for a gift annuity program. Without the benefit of routine assessments, some programs will encounter problems or fail when an early diagnosis could have saved them.
The income tax charitable deduction reduces a taxpayer’s reportable income. It does not reduce the income tax due on a dollar-for-dollar basis. For example, consider a taxpayer with a marginal income tax rate of 24%. If the taxpayer makes a charitable gift of $10,000 that is fully deductible, the income tax savings is not $10,000. Instead, the donor’s reportable income is reduced by $10,000, with tax savings in this case being 24% of $10,000, or $2,400.
Imagine this scenario. Your organization’s fiscal year just ended. The VP of advancement, your boss, summons you to her office. She asks about your objectives for the planned giving program in the next fiscal year. Your response: “I don’t have a formal plan.” Without a detailed annual plan, essentially you just told your VP that you are “just winging it.”
PG Calc’s March Featured Article discussed the practical challenges of making a charity the beneficiary of an IRA and other qualified plans upon the donor’s death. The process of completing the beneficiary designation form is complicated and bureaucratic. And then there's the matter of collecting the proceeds after the donor's death.
Most gift planning professionals have heard of charitable lead trusts (CLTs), where the charitable beneficiary receives payments, typically for a term of years, and the remainder is distributed to one or more non-charitable beneficiaries at the end of the term. Historically, these trusts have been used – or at least contemplated – by donors whose wealth exposes them potentially to paying gift or estate tax. This type of lead trust is called a non-grantor charitable lead trust. At the end of the term, the assets remaining in the trust are distributed to persons other than the donor (grantor), and most typically, to members of the donor’s family.