Charitable Planning

Happy Holiday Gift, for Gift-Givers!
Spoiler alert: Charitable IRA Rollover Provisions Made Permanent

The end of the year is, probably more often than we would like, an exciting time for professional advisors, as Congress plays Santa and makes last-minute gifts, with the occasional lump of coal for good measure. It is a tall order to advocate sympathy for the IRS, at any time, but I can only imagine how frustrated they must feel each year around this time. This year, thankfully, Congress passed a tax bill that mostly contained gifts. In fact, the best kind of gifts — the kind that makes it easier to give more gifts! First, some background:

Charitable planning is one of our favorite topics to engage with our estate planning clients, not only because it is an opportunity to enable really good to be done in a win-win situation for both clients and the charities they support, but also because there are a broad array of fun (to us) tools available to accomplish our clients’ charitable goals. Most of these discussions start with charitable planning with qualified retirement assets, because virtually everyone has them, and they are the easiest tax-advantaged charitable vehicle.

Conventional qualified retirement accounts (non-Roth) are income tax-deferred, where the owner contributes pre-tax dollars, deferring the tax to retirement when they will, in most cases, be in a lower tax bracket, while enjoying all those years of tax-deferred growth of the IRA. As any retiree knows, the reckoning comes at age seventy and a half, when the required minimum distributions, and corresponding income tax, start. The IRA assets are taxed as income to the retired owner, but also to any individual designated beneficiary of the account after the owner’s passing unless that beneficiary is a charity. Qualified charitable organizations do not pay income tax, and so they receive one-hundred-cent-dollars from an IRA. Wonderful charitable option after you die, but what about the retiree taking RMDs each year from their IRA?

For the last several years, around this time of year, the IRS has authorized, for the taxable year just about to end, a direct charitable IRA rollover whereby the IRA owner directs a distribution directly to a charity and satisfies their RMD in the process — meaning the RMD does not get included as taxable income first. You are probably thinking, that is great, why would it not be a permanent feature of our tax regime? Great question!

The great news is that, with the PATH act passed by Congress last week, the charitable IRA rollover is now a permanent feature. Any IRA owner who is at least seventy and a half can now, on an annual basis, make a direct distribution from her IRA to a qualified charity in an amount up to $100,000, and such distribution can satisfy part or all of the RMD, and is not included in taxable income! There are some limits — the recipient charity cannot be a donor-advised fund, a charitable gift annuity, or a charitable trust. Be sure to consult with your tax advisor before giving your IRA plan administrator any directions for charitable distributions.

The PATH act included a few select other changes and extenders on the charitable giving front, including an expansion of the conservation gift deductions and clarification of S Corp gifts of appreciated property. All in all, a great start to tax season. Thanks, Santa!

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation. All THK blogs are considered advertising material by the Indiana Bar Association.