Charitable Gifts of IRA/IRD via a Beneficiary Statement - Good. Charitable Gifts of IRA / IRD Assets The Good, The Bad and The Ugly.

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1 Charitable Gifts of IRA / IRD Assets The Good, The Bad and The Ugly Susan C Dunlop Luther Seminary - Gary G Hargroves Thompson & Associates Minnesota Planned Giving Council Conference Definitions IRD Income in Respect of Decedent Part of an estate which consists of taxable income to which the deceased person was entitled to, but did not receive before their death. Examples: IRA Individual Retirement Account or 403(b), 401(k), 457(b) Charitable Gifts of IRA/IRD via a Beneficiary Statement - Good Simple No Cost Revocable Most tax favored gift Nearly everyone has IRA/IRD assets Represents significant % of net worth 1

2 Beneficiary Statement -Good Unlimited Charitable Deduction No Income Taxes No Federal or Minnesota Estate Taxes Not a part of the probate process Goes directly to charity No need for attorney or witnesses No need for will or trust Beneficiary Statement - Bad Donors don t know gift amount over time Quality donor stewardship for lifetime of the donors often not provided Development officers change Development Leadership & Strategy Change; Financial Advisors Change Donors forget they have made the gift Beneficiary Statement - Ugly Odds of receiving low Charity usually contingent beneficiary Health and competency changes Investment custodian changes Charitable interests change Donor moves to another location 2

3 Beneficiary Statement - Ugly No charitable back up language in Will/ Trust such as: To the extent this amount is not realized by other gifts from my estate, I instruct that this amount be satisfied in cash or in kind and the (personal representative and/ or trustee) can allocate different assets to the different residuary beneficiaries in satisfaction of their percentage interest in the residue of the (estate or trust.) IRA Rollover Good Helps Non-Itemizers (65% of tax payers) Use Standard Deduction 2014 Single: $6,200 Married: $12,400 Example: $10,000 Gift, 25% Tax Bracket Withdraw & Give Pay $2,500 in taxes Rollover saves $2,500 IRA Rollover Good Helps generous donors who give more than can be deducted; Cash: 50% of adjusted gross income (AGI) Appreciated assets: 30% of AGI Can give more and by-pass taxable income Same result as for non-itemizer 3

4 IRA Rollover Bad Must be 70 ½ or older It s easier and simpler to write a check or use a credit card It is NOT easy to figure out how to make IRA Rollover Gift IRA Custodial Firms do not encourage IRA Rollover Gifts IRA Rollovers Bad Complex Vanguard (others no better) Searching Doesn t Work Forms Buy or Sell View All Distribution from a Vanguard IRA (toward bottom of list) IRA Distribution Kit Option C Make Check Payable to Someone Else IRA Rollover Ugly Government Inaction Donors reluctance to make Rollover Gifts unless approved by Government / IRS Has to be renewed every two years Extenders often renewed late in year or even in the year after On January 3, 2013 the rollover was extended for Legislation Not Passed (10/6/14) 4

5 IRA/IRD Funded CRT - Good No income taxation when funded; therefore more available for income payouts Remainder benefit for charity Provides income to spouse Lowers estate taxes Income to children/grandchildren for term of years Remainder beneficiary designation cannot be changed by surviving spouse or their new spouse Beneficiaries income is taxed IRA Funded CRT Good Asset value may grow; due to no Required Minimum Distribution (RMD) Protects assets from heir s creditors Trust recipients do not need to manage assets or tax accounting Prevents assets from passing to new spouse s children IRA Funded CRT Bad Surviving spouse or children may need the assets outright Charity does not receive gift if IRA beneficiary designation does not use legal name of the trust and trustee 5

6 IRA Funded CRT Ugly No funds left in IRA/IRD account Donor changes mind about CRT being beneficiary Special Needs Trust / CRT - Good Donor can take care of loved one with health challenges AND make gift to charity IRA/IRD account owners may name special needs trust as beneficiary of IRA/ IRD assets Special Needs Trust / CRT - Good Keeps loved one from being disqualified from means-tested government benefits CRT receives full distribution of IRA/IRD funds at owner s death CRT is exempt from income taxation CRT pays irrevocable income stream to the Special Needs Trust 6

7 Special Needs Trust / CRT - Bad Cost of setting up two trusts Special Needs Trust / CRT Ugly CRT depleted No gift to charity Outright Gift - Good Outright gift to charity Itemize Deductions Deduct full amount Taxwise, a wash (in most cases) Lowers income and estate taxes 7

8 Outright Gift - Bad Outright Gift - Ugly Q-TIP Trust with Charity Beneficiary Good Heavy taxes for non-itemizer Requires thoughtful planning May trigger Social Security income taxes Donor may jeopardize financial health to make a gift If done in response to pressure from charity Penalty if under 59 ½ years of age IRS allows Qualified Terminable Interest Property Trust (QTIP) used for IRA/IRD assets with charity as remainder beneficiary Generates a 100% estate tax marital deduction when the first spouse dies 8

9 Q-TIP Trust with Charity Remainder Beneficiary - Good 100% estate tax charitable deduction at the death of the surviving spouse Surviving spouse/heirs may not change remainder beneficiary to a new spouse, their children, or a different charity Q-TIP Trust with Charity Remainder Beneficiary Good Surviving /heirs has right to income and principal for as long as they live Income payable annually or at more frequent intervals No one, not even the surviving spouse/heirs, may have power to appoint the property to anyone other than trust designated beneficiary Q-TIP Trust w/ Charity Remainder Beneficiary - Bad and Ugly Surviving spouse/heirs use all assets in the QTIP The QTIP leaves nothing to charity 9

10 Thank You! Questions 10