Qualified charitable distributions (QCDs), also known as charitable IRA rollovers, are particularly appealing to donors because they provide a tax benefit whether or not the donor itemizes deductions. While on the surface they seem simple – request a payment go directly from the plan administrator to a qualifying charity – there are nuances to these types of gifts of which charities should be aware. Let’s take a closer look at some of those subtleties as they relate to QCD requirements.
Related use refers to whether a charity will put a gift of tangible personal property, such as artwork or an antique car, to a use that is related to the organization's charitable purpose.
While most planned gifts are funded with a single asset, typically cash or a single block of long term appreciated securities, it is not unusual for a donor to create a planned gift using a combination of assets. The combination might be a single block of long term appreciated securities plus cash, or a block of long term appreciated securities plus a block of short term appreciated securities, or cash plus long term appreciated mutual fund shares and short term appreciated mutual fund shares.
Given the choice, most charities and asset managers would prefer that donors fund life income gifts with cash or publicly traded securities. These assets are easy to value and easy to sell. Real estate, on the other hand, can be difficult to value and hard to sell. It also carries with it financial risk due to environmental problems, hidden structural defects, and a host of other possible issues. That said, the real estate market is red hot. Some economists argue that we are experiencing a real estate bubble that may burst anytime, after which prices will tumble.
A retained life estate plus deferred gift annuity combines two gift arrangements. The arrangements allow a donor to use some of the value of her home or farm to fund a plan that will make payments to her or others for life starting one or more years after the gift is made.
Income beneficiaries may be interested in receiving an annuity amount rather than income from a unitrust. There are a number of reasons a beneficiary might consider such an arrangement. The downturn in the economy may be reducing the payout the beneficiary is receiving. A change in the beneficiary’s financial situation may prompt them to look for a more secure income stream. By releasing the beneficiary’s interest in the CRUT, the charity receives the trust principal sooner.
Short term appreciated property is appreciated property that has been held by the owner for 12 months or less. When a taxpayer sells short term appreciated property, the gain realized in the sale is subject to ordinary income tax.
A Series EE bond is a form of U.S. Savings Bond that was introduced in 1980.
Long term appreciated property is appreciated property that has been held by the owner for more than 12 months. When a taxpayer sells long term appreciated property, the gain realized in the sale is subject to capital gains tax.