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GIFT PLANNING UPDATE
WINTER 2011
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The charitable IRA rollover: Tax elimination at its best
Estate tax reduction: Is it the end of charitable estate planning as we know it?
Low interest rates continue: Increasing clients' cash flow through charitable giving
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 Dear Colleague,
You have doubtless read multiple summaries of the tax bill passed by Congress at the end of 2010, so I won't repeat any here. Instead, this issue provides some practical ideas for applying that new law to your charitably inclined clients.
For other current charitable planning information or to read prior newsletters, visit Jewish Home & Senior Living Foundation’s website, at www.jhslf.org.
Daniel Hoebeke
Gift Planning Officer
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The charitable IRA rollover: Tax elimination at its best
Congress reinstituted the allowance of direct, lifetime gifts to charity from IRAs. Under this exception, withdrawals by individuals age 70½ and older do not show as income on their 1040s. Since these gifts also satisfy the required minimum distribution, taxpayers can avoid declaring income that they would otherwise have to.
This giving option is particularly attractive for two kinds of clients: those who do not itemize, and those whose income causes social security benefits to be taxable.
Clients who do not itemize may think there is no financial incentive to make charitable gifts. However, the direct contribution from an IRA – although not providing a charitable deduction (which would be double dipping) – provides a greater benefit since the reduction of income is "above the line."
The reduction in income also benefits clients whose modified adjusted gross income makes some social security benefits subject to tax. To the extent that income is reduced, the tax on social security benefits likewise decreases.
The process is simple: the client instructs the IRA plan administrator to make a direct distribution from the IRA to charity. Upon request, I am happy to provide you with a form letter to accomplish this.
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Estate tax reduction: Is it the end of charitable estate planning as we know it?
The new $5 million estate tax exemption has many in the charitable-giving field concerned. While it will certainly eliminate some gifts that were primarily tax motivated, there are caveats.
First, the law is a temporary fix through 2012. In all likelihood, we'll address the same policy issues again in two years’ time. Thus, clients who are breathing a sigh of relief should temper their enthusiasm.
Second, our experience with donors is that tax benefits are not the primary motivation for estate giving. Rather, donors generally want to realize two objectives: provide sufficient assets to their family consistent with the recipients' ability to manage assets well, and leave a legacy through charitable giving. Our challenge as a receiving charity is to carefully explain the long-term benefits of estate giving.
Third, for clients who are tax sensitive, the virtual elimination of estate tax does not necessarily mean that their estates will pass tax free. IRAs and other retirement accounts held at death are still subject to deferred income tax. Therefore, if there is charitable intent, it makes sense to satisfy the charitable gifts from IRA assets (and other income in respect of a decedent) and to satisfy non-charitable gifts with those assets that truly pass tax free.
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Low interest rates continue: Increasing clients' cash flow through charitable giving
Individuals on a fixed income often tell us that they can no longer rely on the combination of cost of living adjustments and investment earnings to provide for their living needs.
A charitable gift annuity (CGA) can help ameliorate those concerns while satisfying the additional desire to make a charitable gift.
A CGA is a classic split-interest gift. The donor contributes money to a qualified charity and receives an immediate charitable deduction for 35 percent to 50 percent of its initial value. During life (or lives), an annual annuity is paid to the donor at a rate based on life expectancy. For example, at age 70 the current rate is 5.8 percent; at 80, 7.2 percent.
The fact that only a minor percentage of the annuity is reportable as income is attractive to the donor. (The remainder is tax-free return of principal.) The ability to exclude part of the annuity from income is extremely beneficial in those instances where modified adjusted gross income is used to calculate the taxability of social security income, imposition of the alternative minimum tax, etc.
The Jewish Home has charitable giving software that allows us to prepare personalized illustrations. This is a free service and one that we offer to professional advisors confidentially and without obligation.
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Please note: The Jewish Home does not perform legal work on behalf of individuals; donors are encouraged to independently consult qualified professional advisors to assist them in their charitable estate planning.
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The information in this publication is not legal or tax advice and is designed to be for general information only. Tax and estate planning should only be undertaken under the direction of a competent professional.
In accordance with Circular 230 issued by the IRS, any information contained in this e-mail that might be construed as tax advice was not intended to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under federal tax law. Furthermore, you should only rely upon a formal tax opinion that conforms to IRS standards. This e-mail does not meet those standards.
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Jewish Home
302 Silver Avenue
San Francisco, CA 94112
415.334.2500
www.jhsf.org
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