CHICAGO COUNCIL ON PLANNED GIVING 2015 ANNUAL SYMPOSIUM MAY 28, 2015. IRAs, QPs, IRD, and Charitable Planning What You Don t Know Can Hurt Your Donors

CHICAGO COUNCIL ON PLANNED GIVING 2015 ANNUAL SYMPOSIUM MAY 28, 2015 IRAs, QPs, IRD, and Charitable Planning What You Don t Know Can Hurt Your Donors Charles Slamar Vice President Thompson & Associates 208 South LaSalle Street, Suite 1660 Chicago, IL 60604-1226 312-419-0266 Charles@ceplan.com I skate to where the puck is going to be that s where the money is.. Wayne Gretzky Willie Sutton Making the Case Retirement assets are among the most significant components of many families balance sheets (Federal Reserve Bulletin, September, 2014). Indeed, by last count, these assets total nearly $25 trillion. (The Investment Company Institute March, 2015 Report). In addition, they are among the most widely held asset class. According to the Federal Reserve, nearly 50% of all American households have a retirement plan. Only transaction (checking, savings, and money market) accounts, vehicles, and primary residences are owned by more Americans. Contributions to retirement plans are either tax deductible or not subject to income tax. Further, its earnings and appreciation accumulate tax-free. Consequently, retirement plans are extremely effective tax deferral arrangements. On the other hand, they are extremely inefficient wealth transfer arrangements. As a general rule, a lifetime transfer of assets will shift income from the donor s higher tax rate to the donee s lower bracket. The transfer will also remove any appreciation of the asset from the donor s estate. But, the ownership of a retirement plan cannot be transferred during one s lifetime. The only option the owner has in this regard is to withdraw the assets and then transfer them. However, the amount withdrawn will be subject to income tax --- and, perhaps, a penalty if the donor is younger than 59 ½ years old. 1

Retirement assets may be transferred at death by means of a beneficiary designation. Once the owner dies, not only is the value of retirement plan subject to income, estate (state and federal), and generation skipping tax, it is also subject to a fourth tax: income in respect of a decedent (discussed later). And, unlike most assets that are inherited, the amounts paid to its beneficiaries are also subject to income tax upon receipt. The application of these various layers of tax --- on the transferor, as well as the transferee --- can result in significant shrinkage in value of the plan once it does get to the beneficiary. Charities are tax-exempt. Not only does the value of retirement plan assets passed to it escape any estate tax, but also it pays no income tax on the amounts it receives. Accordingly, using retirement assets to make charitable gifts upon death is an extremely tax efficient method --- even for those estates below the federal and state exemption amounts. QP v IRA Income tax deferred retirement accounts are divided primarily between qualified retirement plans (QPs) and individual retirement accounts (IRAs). A QP is an employer sponsored retirement account that is eligible for special tax treatment, i.e., income tax deferral on contributions and tax-free build up of earnings and appreciation. There are two types of QPs. The first is a defined benefit (pension) plan. The second (and more common) is a defined contribution (profit sharing or 401(k), ESOP, and 403(b)) plan. According to the Bureau of Labor Statistics, 53% of all workers participate some type of retirement plan through their employment. An IRA, on the other hand, is created and maintained by an individual for their retirement. These are used by those not covered by retirement plans at work, as well as by those who wish to preserve the income tax advantages of QPs when they change jobs or retire. In addition to the tax-free build up of earnings and appreciation, contributions are tax deductible. According to Investment Company of America, 40% of all households, nearly 50 million, have an IRA. There are three major differences between IRAs and QPs. The first is the required beginning date (RBD). Payments from an IRA must begin by April 1 of the calendar year following when the beneficiary attains age 70½. Conversely, payments from a QP can be delayed until April 1 of the calendar year following the individual s retirement should the beneficiary still be employed after 70½. Although the payments from an IRA may not be transferred to a QP, I am aware of a situation where the owner of an IRA transferred those accounts to his QP before he retired, effectively delaying the distributions on those accounts. The second difference is who may be designated as the beneficiary (DB). While anyone can be named the beneficiary of either account, there is less flexibility with QPs. Federal statute mandates that the surviving spouse of a QP participant receive a joint and survivor annuity and a qualified preretirement survivor annuity unless the spouse waives their right to these benefits. Accordingly, most QPs will require that the employee s surviving spouse 2

be named as the primary beneficiary unless that spouse consents in writing. Those plans that do not require this must then provide that the employee s QP be paid in the form of a joint and surviving annuity unless the spouse consents to otherwise in writing. The third difference involves the potential of a lump sum payment from the QP. Payments from an IRA are generally spread over the beneficiary s life expectancy. A QP may provide for the payment of the employee s entire interest (in either a lump sum or over 5 years) should the employee terminate employment before retirement or upon the employee s death. If an IRA does not have a DB, it, too must be paid out in either a lump sum or over 5 years. Roth IRA A passing reference must be made to Roth IRAs. Unlike a traditional IRA, contributions to a Roth IRA are not tax deductible. They are made with after tax dollars. Although the value of a Roth IRA is includable in a decedent s estate, subject to certain qualifications, the withdrawals from it, whether by the owner or its beneficiaries, are not subject to income tax. Roth IRAs are particularly attractive to those who expect to be in a higher income tax bracket when funds are withdrawn than when they are contributed (e.g., younger workers). In any event, Roth IRAs are not included in our discussion of the benefits of using retirement assets to make charitable gifts. Income in Respect of a Decedent (IRD) As referenced earlier, retirement plan payments may be subject to IRD. This is income earned during one s lifetime, but not paid until after the earner s death. Such income is included in the decedent s estate and is taxable as ordinary income on the decedent s final income tax return. Although the decedent will get an income tax deduction for the amount attributed to the estate tax, if any, this deduction is available only if the decedent could itemize their deductions. Consequently, IRD assets in a decedent s estate are subject to four different levels of taxation (i.e., income, estate, IRD, and generation skipping) resulting in significant loss of value. Retirement assets are the most widely held and valuable IRD asset. Other IRD assets include savings bonds and commercial annuities. Since charities are exempt from taxation, these assets, or a portion of them, should be considered for making testamentary charitable gifts. How Payments from Retirement Plans are Made and Taxed (a) To Owner Short of naming a charity as the beneficiary of a retirement plan or the reenactment of the IRA Charitable Rollover (discussed later), there is no avoiding income tax on its distributions. The best those receiving its proceeds can hope to achieve is to minimize the income tax consequences by stretching out their distributions over as long a period of time 3

as possible. Nevertheless, financial planners report that most inherited retirement plans are entirely spent within 18 months. If the employee terminates employment before retirement, they can roll over the QP payment(s) to an IRA deferring income tax on the distributions until they are paid out of the IRA. Otherwise the distributions are subject to income tax in the year received. The owner of an IRA may not make withdrawals before age 59 ½ without subjecting such payments to a 10% penalty tax in addition to income tax on the withdrawal. Once the owner attains age 59 ½, they may withdraw any amounts without incurring a penalty. Once the owner turns 70 ½ years, they must begin receiving payments beginning the following April 1; i.e., required beginning date (RBD). These mandatory payments (the required minimum distribution (RMD)) are determined by the owner s life expectancy. If the IRA owner s spouse is the sole designated beneficiary (DB), then the RMD is the longer of the owner s life expectancy or the joint life expectancies of the owner and the spouse (which is recalculated each year). However, only when the spouse is more than 10 years younger than the owner will the joint life expectancy period be longer than the owner s alone. If anyone other than the owner s spouse is a beneficiary, then only the owner s life expectancy is considered for the RMD. (b) To Surviving Spouse If a lump sum is payable upon the employee s death from a QP and the surviving spouse is the beneficiary, the surviving spouse can rollover the distributions to a spousal IRA. This option is also available when the surviving spouse is the beneficiary of the deceased spouse s IRA. In either event, a spousal IRA allows the surviving spouse to substitute their birth date for the deceased spouse s. Payments would begin based on the surviving spouse s RBD and be made over that spouse s life expectancy. Consequently, a spousal IRA is often called a stretch IRA. If the surviving spouse is under the age of 59½ and anticipates needing the funds, they may decide to forego a spousal IRA and choose to receive their distribution in an inherited IRA (discussed later). As long as the surviving spouse is the sole beneficiary of either a QP or IRA, the account value can qualify for the unlimited marital deduction --- however the distributions are still subject to income tax. (c) To Non-Spouse Beneficiary Unlike most other inherited assets, retirement plans that pass upon death do not receive a step up in basis and the full amount is subject to income tax when received by the beneficiary. A non-spouse beneficiary may roll over either the QP s or IRA s distributions to an inherited IRA. In order to defer any income tax on these distributions, the rollover must be to a newly created IRA in the name of the deceased employee and completed by December 31 of the year following the employee s death. The transfer must be made directly from the trustee of the QP or IRA to the trustee of the newly created IRA. 4

The payments from an inherited IRA must begin by December 31 of the year following the deceased s death. There is no stretch out nor is there a 10% penalty for early withdrawal if the beneficiary is younger than 59½. The required payments are determined by the beneficiary s life expectancy when the payments are to begin. Payments in subsequent years are determined by subtracting 1 for each year after the initial life expectancy. As a general rule, if an IRA has multiple beneficiaries, then the DB with the shortest life expectancy will be used to determine the RMD from the IRA. An exception to this rule is where the IRA is divided into separate accounts for each of the multiple beneficiaries by December 31 of the year following the date of death of the IRA owner. Under this separate account rule, the RMD is then applied separately to each DB s life expectancy. However in order to apply this exception, the division into shares must occur in the IRA designation form and not in the trust, if payable to a trust (pages 39 and 40 in IRS Publication 590, Individual Retirement Arrangements (IRA), for use in preparing 2012 returns, Jan 30, 2013 and page 4-9 of ICLE Retirement Benefit Issues in Estate Planning (2012)). Although only individuals qualify as a DB, a trust may qualify as a DB if all its beneficiaries are individuals. In addition, in order to qualify as a DB, the trust must (a) be valid under state law; (b) be irrevocable or will become irrevocable upon death of IRA owner; (c) have identifiable beneficiaries; and (d) a copy of the trust agreement (or a list of all beneficiaries, including contingent and remainder) is provided the plan administrator by October 31 of year following death of IRA owner. If these conditions are met, the trust s beneficiaries are considered the beneficiaries of the IRA ( look through rule ). The trust may then rollover the plan to an inherited IRA. Since a charity is not an individual, if a trust includes charitable beneficiaries, the look through rule will not apply and any distributions from the trustor s IRAs to the trust must be paid within 5 years of their death In addition, where a trust is the beneficiary of an IRA, the general rule is that all of the beneficiaries (including contingent and remainder) must be considered in determining the DB of the IRA. Under these circumstances, an older contingent beneficiary may end up being the determining life for the distributions from the IRA. A conduit trust avoids this result by (in addition to meeting the other qualified trust requirements) having only one beneficiary and providing that all of the distributions paid from the IRA to the trustee must be paid directly to the DB. A conduit trust is a flow through entity. Commentators suggest that it be created before the death of the IRA owner as a separate trust document from the owner s revocable living trust and designated as the direct beneficiary on the IRA designation form. More Bad News for Retirement Plan Beneficiaries So great is our concern about retirement security that retirement assets have attained near sacrosanct status. As further evidence, just last month, the Labor Department proposed new rules designed to protect such funds from risky alternative investments, i.e., those other than stocks, bonds, and cash such as hedge funds, real estate investment trusts, and private equity funds. Lured by the promise of higher returns and income, such investments 5

also come with higher fees and commissions that may not be appropriate for the average investor. Furthermore, in addition to the protection afforded by ERISA (Employee Retirement Income Security Act), the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 exempts the entire amount of employer sponsored plans and up to $1 million (adjusted for inflation) of owner sponsored plans from the claims of creditors. Nevertheless, what constituted retirement funds and was thus eligible for protection was open to interpretation. Inconsistent rulings by various courts encouraged bankruptcy trustees to challenge the exempt status of inherited IRAs. Last June, the U.S. Supreme Court in the case of Clark v Rameker (134 S. Ct. 2242 (2014)) ruled unanimously that inherited IRAs were not protected assets under federal bankruptcy laws. The Court observed that bankruptcy protection was intended for the debtor s retirement needs. Since the beneficiary of an inherited IRA cannot add their own funds to it and can withdraw from it any amount any time without penalty, it was not intended for the debtor s retirement needs. The Court also rejected the debtor s argument that only the minimum required distribution was attachable, ruling that an inherited IRA was no different than any other financial account. The Clark case applies only to bankruptcy under the federal code. Some states expressly exempt inherited IRAs under their own bankruptcy code. However, this may be of little comfort for those intending to move or whose domicile may be unclear. In any event, Illinois is among those without a specific exemption for inherited IRAs. In addition, a recent bankruptcy case in the Northern District of Illinois (In re Taylor, No. 12-16471) specifically rejected the claim of the debtor that his inherited IRA was exempt. It is also unclear whether the Clark case applies to situations where the surviving spouse is the beneficiary. It would appear not, where the surviving spouse rolls over the inherited IRA into their own IRA. It might apply where the spouse foregoes the spousal rollover and treats it as an inherited IRA. While a see through trust may be used to protect the proceeds of a retirement plan from the claims of creditors, the protection of such proceeds in the hands of anyone other than a surviving spouse has been clearly eroded. The end result is just further evidence of why such assets make effective charitable gifts. Gifts of Retirement Assets to Charity Assume a donor has an estate valued at $2 million. It is comprised of a retirement plan with a balance of $1.2 million; life insurance with a death benefit of $300,000; and other assets (such as bank accounts and personal residence) valued at $500,000. The donor knows the federal estate tax exemption is $5.43 million and the Illinois estate tax exemption is $4 million. Since these amounts are well above the value of the donor s estate, the donor believes they have a non-taxable estate. However, the balance of the retirement plan, while sheltered by the federal and state exemption amounts from estate tax, is subject to income tax when paid to its beneficiaries. Assuming a 28% income tax rate, the donor s beneficiaries will pay $336,000 in tax on the distribution of the proceeds of the retirement plan. Consequently, the amount available for the estate s beneficiaries is 6

reduced from $2 million to $1.664 million --- a loss of 16%. Had the retirement account been an investment account, or some other non-ird asset, there would be no reduction in the amount distributed. (a) Directly from the Plan Suppose this same donor wants to make a gift of 10% of the value of their estate ($2 million) to charity, i.e., $200,000. The most tax efficient manner to accomplish this is to name charity as the beneficiary of a percentage of the value of their retirement plan that equals 10% of the value of this estate. Remember, if the retirement plan is a QP, the owner s surviving spouse must approve the change. In this instance, 10% of the value of the estate ($2 million) is 16.67% of the value of the plan ($1.2 million). The donor may simply name charity to receive 16.67% of the plan upon their death with the balance going to the individual beneficiaries (assume it s the donor s three children). The $200,000 distributed to charity, reduces the income taxes on the amounts paid to the children to $280,000 (a savings of $56,00). Now taxes comprise 14% of the donor s estate (as opposed to 16% without the charitable gift). Although the children s share is reduced from $1.664 million (or 84% of the donor s state) to $1.52 million (or 76%), the extra $48,000 per child may or may not have a significant impact in their lives. In either event, the amount set aside for charity will make a significant difference in the lives of those it serves. Needless to say, the tax savings are even greater when the estate is subject to federal and state estate tax. (b) Partially from the Donor s Estate or Trust A complication arising from naming charity to receive a percentage of the retirement plan is the need to track and coordinate its value with those of the donor s other assets. Without such tracking and coordination, the donor may inadvertently leave the charity much more - -- or less --- than planned. One alternative is to name the charity to receive a percentage of the value of the retirement plan and have coordinating language in the donor s will or trust to make up the difference. However, as discussed later, donors need to be careful how they word such make up language. (c) Directly from Estate or Trust A donor may name their estate or trust as the beneficiary of the retirement plan. While the transfer of an item of IRD by an estate to satisfy an obligation of the estate will cause the estate to recognize IRD, if the estate transfers the item of IRD to a specific legatee of the item or to a residual beneficiary, only the legatee or the residual beneficiary will recognize IRD. Further, when an IRA is assigned by an estate to a charity to satisfy a pecuniary bequest to the charity, the estate must recognize IRD (IRS Chief Counsel Advice 200644020). However, when a charity or charities are the sole beneficiary of the estate and the estate assigns the IRA to the charities, the estate does not recognize IRD (PLR 200826028). 7

Often an IRA is payable to the client s estate or trust and the client s will or revocable trust contains a charitable bequest with a provision that it first be funded with assets that constitute IRD. This was a well-accepted procedure until April of 2012 when the IRS issued final regulations (T.D. 9582). These regulations require that a provision in a trust or will specifically indicating the source out of which charitable amounts would be paid must have independent economic effect aside from income tax consequences if the allocation is to be respected for federal tax purposes. By way of background, T.D. 9582 primarily targeted charitable lead trusts (which first pay to charitable beneficiaries and any remainder to non charitable beneficiaries) that provide that payments are to be made first from income, then from capital gains, then from tax exempt income, and then from principal. Since a charitable lead trust (unlike a charitable remainder trust) is not tax exempt, any amount of income not paid to charity is taxable to the trust. According to the regulations: Ordering provisions in charitable lead trusts will never have economic effect independent of their tax consequences because the amount paid to the charity is not dependent upon the type of income it is allocated. An annuity payment is a fixed amount from year to year, and although a unitrust payment may fluctuate annually, the amount is based upon a predetermined percentage of the trust s value. The regulations gave two examples. In the first, a charitable lead trust provides for the ordering of the payment of the annuity or unitrust amount to the charity. Such ordering is deemed to have no economic effect independent of tax consequences. Consequently, the amounts deemed to be paid to charity will consist of the same proportion of each class of the items of income as the total of each class bears to the total of all classes. In the second example, a trust provides that 100% of all ordinary income be distributed currently to charity and all remaining items of income distributed to a noncharitable beneficiary. Such provision is deemed to have economic effect independent of income tax consequences because the amount paid to charity each year is dependent upon the amount of ordinary income earned by the trust. Consequently, an IRA naming a charitable beneficiary should not be affected by these regulations because the distribution is from the IRA itself and does not involve a Section 642(c) deduction that allows estates and complex trusts to deduct amounts for charitable purposes. But this is different than where the IRA is payable to the donor s estate or trust and there is a direction in the document that the charitable bequest be funded with assets that constitute IRD. If the will or trust directs that specific assets be distributed to charity then it should have the independent economic consequence of the second example. However, where the charitable gift is of a fixed amount and the direction is to fund first with assets that constitute IRD, it would appear that the amount paid to charity is not dependent upon the type of income with which it is to be paid. 8

The situation is further clouded --- or cleared --- by PLR 201330011 that confirms that a distribution from an IRA to a residuary beneficiary will not result in IRD to the estate or trust because only the residuary beneficiary will recognize it. In this instance, the decedent owned several IRAs, each payable to his estate. His will provided that his estate was to be distributed to his revocable trust. His revocable trust named two charities, as well as noncharitable beneficiaries, as the residual beneficiaries, each to receive a percentage of his trust. The trust also provided that the percentage could be satisfied in cash or kind and the trustee could allocate different assets to the different residuary beneficiaries in satisfaction of their percentage interest in the residue of the trust. Here, even though the IRA went from the estate to the trust to the charities (who were not the sole beneficiaries of the trust), there was no recognition of IRD. Not only was the disproportionate distribution allowed by the trust agreement, but also the executor joined the trustee in allocating the IRAs to the charities and the non-ird assets to the noncharitable beneficiaries. Since an estate or charity does not qualify as a designated beneficiary, any non-charitable beneficiary of the IRA would not have been able to elect either their own life expectancy (if the decedent was younger than 70 ½) or the longer of their life expectancy or the remaining life expectancy of the decedent (if the decedent was 70 ½ or older) as the applicable distribution period. As we saw, under certain circumstances, a trust may qualify as a DB and its beneficiaries will be considered beneficiaries of the IRA. Howver, this look through rule is not available when one of the beneficiaries of the trust is a charity. Consequently, the longer distribution periods would not have been available for any noncharitable beneficiaries of the decedent s estate. (d) Use to Fund a Charitable Remainder Trust Rather than using retirement plans to make an outright gift to charity, retirement assets may also be used to fund a testamentary charitable remainder trust (CRT). As we know, these trusts are tax exempt and provide a stream of income to non-charitable beneficiaries for their life, lives, or term of years. Upon the completion of the income interest, the remaining assets in the trust are paid to a charitable beneficiary. By naming a testamentary CRT as the beneficiary of an IRA or QP, only the present value of the income interest will be includable in the owner s estate rather than the full amount of the plan. In addition, the donor has essentially created a stretch out IRA, where one might not otherwise have been available, since the beneficiary has lost the right to withdraw a lump sum. Since the CRT is tax exempt, the full amount of the plan is available to support a much larger income stream. Furthermore, the 5% minimum payout amount often exceeds the RMD amount of the retirement plan. Of course, if a charitable remainder unitrust (CRUT) is used (where the payments are determined by the value of the trust each year), the beneficiary may receive a smaller distribution than anticipated should the CRUT decrease in value (similarly the beneficiary 9

may receive more if it increases). And, upon the completion of the income interest the entire amount of the trust passes to charity and is no longer available for the family. IRA Charitable Rollover The IRA Charitable Rollover, introduced by The Pension Protection Act of 2006 (PPA), allowed taxpayers 70 ½ years or older to direct up to $100,000 from their IRA to qualified charitable organizations without income tax consequences. This legislation has expired and been renewed a number of times. However, as of this writing, it has not been extended beyond 2014. Before its enactment (as well as currently), donors had to include such amounts in their income and claim a charitable income tax deduction. For high-income taxpayers, the charitable deduction was not enough to offset the increase in income taxes. While the rollover provision excludes a cap of $100,000 annually from income, the donor cannot deduct the amount directed to charity (which would have resulted in a double benefit). Only public charities could receive qualified charitable distributions pursuant to the IRA Charitable Rollover. These include a private operating foundation and a private foundation that elects to be treated as a conduit foundation in the year of the distribution. Otherwise private foundations, supporting organizations, donor advised funds, and split interest trusts are not eligible for the IRA Charitable Rollover. In any event, this past March, Partnership for Philanthropic Planning announced the formation of the Charitable IRA Initiative, an IRC Section 501(c)(4) organization to encourage the permanent enactment of the IRA Charitable Rollover. In addition, they are seeking to expand the legislation to allow IRA owners 59 ½ and older to create life income agreements with portions of their IRA assets up to a limit of $500,000 annually. These split interest gifts often have a larger payout (5% minimum in the case of charitable trusts as noted above and much higher for charitable gift annuities) than their IRA required minimum distribution. This is but the latest of many attempts to either make the IRA Charitable Rollover permanent or extend its provisions --- stay tuned. Charitable Alt-IRA While we wait (and wait) for the reenactment of the IRA Rollover, my friend, Andy Hibel, President of The Advise Us Fund, a national donor advised fund, suggests an alternative method of charitable giving using IRA distributions, appreciated stock, and a donor advised fund (FULL DISCLOSURE: I provide legal services for The Advise Us Fund and my family has a donor advised fund with it). Donors and their advisors have long recognized the benefits of giving long term appreciated property to charity rather than cash. A charitable gift of $10,000 in cash generates the same deduction as a charitable gift of long term appreciated property with a fair market value of $10,000. However, while the donor of cash is out of pocket the amount of the cash given, the donor of long-term appreciated property is out of pocket only what they paid for it (i.e., its basis). In addition, the amount of appreciation in the gift 10

escapes capital gain tax, which result if the donor had sold the property and then donated the proceeds. Many such donors then take the next step and purchase similar property with the cash they would have used to make the gift. In this manner, they have increased their basis in the property, which will also minimize taxes in any subsequent sale. The Charitable Alt-IRA is based on a technique suggested by Frank Minton, a nationally recognized planned giving commentator. It involves (a) donating long term appreciated stock (preferably holdings with a low basis) to a donor advised fund (either existing or one created in anticipation of the gift); (b) taking the donor s IRA distribution (which may or may not be the required minimum distribution); and (c) using the IRA distribution to purchase similar stock (or to rebalance their portfolio) resulting in a higher tax basis of the purchased securities. The income tax resulting from the IRA distribution is offset by the charitable deduction generated by the gift of stock to the donor advised fund. Unlike the IRA Charitable Rollover, no further act of Congress or the President is needed to take advantage of the benefits of the Charitable Alt-IRA. It uses long established and recognized methods of charitable giving. In addition, it offers more flexibility than the IRA Charitable Rollover: (a) donors need only be 59 ½ years of age (the required age for avoiding the 10% additional tax penalty for early withdrawals from IRAs) as opposed to 70 ½ years (the required age when one must start taking IRA distributions); (b) the only limits are the amounts of stock available for the donor s use and the funds in their IRA (not the $100,000 limitation of the IRA Charitable Rollover); and (c) the IRA Charitable Rollover may not be given, or used to create, a donor advised fund. Nevertheless, as one financial advisor noted, the Charitable Alt-IRA is not just an alternative to the IRA Charitable Rollover, but a method of charitable giving using IRAs that stands on its own. Conclusion The benefits that retirement plans offer in tax deferral are offset by the taxes incurred upon their owner s death. Indeed, while 0.2% of all estates are subject to the federal estate tax, any estate with a retirement plan is a taxable estate. As much as 40% of a retirement plan s value could be lost to income tax alone. And, a minimum of 40% of its value is lost when it is subject to the estate tax. Accordingly, testamentary gifts of retirement plan assets should be considered in every donor situation. Not only do such gifts help to preserve their value, but maximize it as well. They can shelter the tax upon other assets passed to the heirs and help enhance the essential services our organizations provide. Charles Slamar 11