It's Law! How to Reach the Right Donor Profile for IRA-Funded CGAs and CRTs
The President has signed the government spending bill that authorizes IRA-funded legacy gifts. Now is the time to start talking with your donors and clients about this new giving opportunity.
Overview of the New Law
The new law permits an IRA owner age 70½ or older to make a one-time qualified charitable distribution (QCD) of up to $50,000 from an IRA to fund a charitable life income gift vehicle including an immediate payment charitable gift annuity, a charitable remainder annuity trust or a charitable remainder unitrust. Payments can be made to a donor and/or donor's spouse. The gift is not tax deductible.
IRA Expanded Giving
Americans hold trillions of dollars in IRAs, much of which they may never spend in their lifetimes. The new law permits an IRA owner to make a gift from retirement funds that they may be hesitant to make from their disposable income in a down market. Charitably-minded donors and clients may find an IRA-funded gift annuity to be an attractive new avenue to achieve their goals.
Gift Annuity Donor Profile
Because $50,000 would be a low funding amount for a charitable remainder trust, most IRA owners will choose to fund charitable gift annuities (CGAs). According to the American Council on Gift Annuities (ACGA), the average age for a CGA donor is age 79. The top profile for IRA-funded CGAs will be seniors who are charitably minded.
The payments from a $50,000 CGA will be modest, as most charities follow the ACGA suggested maximum payout rates. The most common marketing point for CGAs is to talk about the security of fixed lifetime payments. Current CGA annuitants are some of the best prospects, because they already know the benefits and can be approached to make a repeat gift. Another idea is to illustrate how creating a series of CGAs (including a one-time gift from an IRA) can build a stream of current and future payments.
Many of your best prospects for IRA legacy gifts will be seniors who are nonitemizers. These individuals currently make charitable gifts and receive no tax benefits. One benefit is that the IRA distribution made directly to fund a CGA is not included in taxable income. The income payments from the CGA will be fully taxable as they are received by the annuitant.
What About Charitable Remainder Trusts?
Will we see many IRA-funded charitable remainder trusts (CRTs)? It seems unlikely. This is because most trust administrators will not trustee a CRT below $100,000. Also, many charities’ gift acceptance policies set a $100,000 minimum for CRTs if the organization is the trustee. There is also the possibility that a donor can self-trustee, but this is not advisable without the assistance of investment and administration professionals, particularly because of the complexity of CRT accounting.
There are some charities with gift acceptance policies that set CRT gift minimums at $50,000. In my experience, these are organizations with the financial expertise to act as trustee. One question is whether the large trust administration companies will relax their minimums and take on administration for smaller CRTs permitted under the new law.
There are other questions that have been raised, such as whether a donor and spouse can each fund the same CRT with a one-time $50,000 IRA gift. This would increase the CRT funding amount to a level that many trust companies would administer. The new law does not permit an IRA gift made as an addition to an existing CRT. It states that the split-interest trust can only hold IRA dollars. The CRT would need to be a new CRT funded with IRA dollars, but it seems possible that a married couple could simultaneously fund the same CRT with their separate $50,000 IRAs.
I am certain we will be hearing about more ideas and interpretations of the new law as nonprofits and advisors begin talking with their donors and clients about the possibilities. I am hopeful we will receive guidance on some of the gray areas from Congress and Treasury. While the new law is not everything the philanthropy industry could have hoped for, it is a good start. Plans for future expansion are already in the works, creating greater possibilities and gift opportunities to help Americans support the charitable causes they love.
The above information is provided for educational purposes. Nothing in this article constitutes tax, financial or legal advice.