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Using IRA Assets for Lifetime and Legacy Giving

Whether your clients are interested in making an immediate impact or planning to leave lasting gifts to charity and/or heirs, there are several strategies that make the IRA an ideal charitable giving vehicle.

Retirement planning has always been an important element of a secure financial future. And for those who are charitably inclined, donating individual retirement account (IRA) assets is among the most tax-advantaged ways to make charitable gifts after age 70 ½. Oftentimes, a retirement account may be the most significant source of assets your clients accumulate and many may find that they don’t need the extra income or don’t welcome the additional tax liability when it comes time for them to start taking distributions. Whether your clients are interested in making an immediate impact or planning to leave lasting gifts to charity and/or heirs, there are several strategies that make the IRA an ideal charitable giving vehicle.

Lifetime Planning

After age 59 ½, your clients can take a taxable distribution from their Traditional IRA without penalty. They can use that in any way including contributing the distribution to charity. If they itemize their charitable deductions, then donating their IRA distribution should provide them with a charitable deduction that offsets their income.

When a client is at least 70 ½ years old, they can begin making IRA distributions directly to charities up to $100,000 per year. These qualified charitable distributions (QCDs) provide a number of tax advantages:

  • QCDs are excluded from taxable income. For those clients who do not itemize deductions, QCDs may provide greater tax savings than cash gifts.
  • Beginning at age 72, QCDs count toward a client’s required minimum distributions (RMDs).

Legacy Planning

Beyond lifetime giving, naming charity as a beneficiary of an IRA or other retirement account can be an effective way to minimize federal and applicable state income and estate taxes, among other benefits:

  • Because charities are tax-exempt, there is no estate or income tax attributed to gifted retirement assets. This means the full amount of your client’s gift will directly benefit the cause(s) that are most important to them.
  • Unfortunately, retirement assets are taxable to your client’s heirs as income in respect of a decedent (IRD). So, choosing assets that are non-taxable such as life insurance proceeds for heirs will maximize what they receive from the estate.

Considerations

When making a QCD to the Community Foundation, the gift must be directed to a permanent fund. The Pension Protection Act of 2006, which created the QCD, specifically prohibits transfers to donor-advised funds or to private foundations. Therefore, the Community Foundation will work with your client to create a fund that will carry out their specific charitable wishes forever. A permanent fund can be structured in several ways:

  • It can support the greatest needs of the community each year. This is determined using a broadly responsive grantmaking process here at the Community Foundation where nonprofits apply for support.
  • It can support a field-of-interest such as programs to reduce poverty or care for animals.
  • It can also be designated to support certain nonprofits.

No matter how it is designed, the fund becomes a permanent part of our charitable support in the community. The donor may make additional gifts to the fund both during their lifetime and through their estate. The Community Foundation will steward this fund in perpetuity as nonprofits or charitable needs change in our community.

For lifetime donors, this approach allows them to see the results of their “planned giving” in action. With help from the Community Foundation, they are able to craft a document that captures information about their lives, values and connection to the community that may be shared with organizations benefiting from their generosity. This document is kept on file at the Community Foundation to give context to their gifts and preserve their charitable legacy for generations to come.
For advisors, you can help your clients avoid unnecessary RMDs and your clients get the fulfilment of creating their legacy plan now and seeing immediate impact. Talk about a win-win!

We can work with you and your clients to facilitate gift acceptance, legacy discernment and story preservation. The process that CNYCF uses to structure a permanent fund is the same for lifetime and legacy donors. Since the fund is designed to last forever, the Community Foundation will utilize the donor’s background and charitable intentions documented when the fund was created to sustain its impact as our community changes over time.

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