Question: When Is a Charitable IRA Rollover not a rollover? Answer: Never! Or - Always! Say what? Read on! The so-called “Charitable IRA Rollover” goes back to 2006, where it started out as a temporary provision in the Pension Protection Act of 2006. The provision expired at the end of 2007, but it was then reinstated retroactively for 2008. Over the next several years, the provision would be allowed to expire multiple times and was then reinstated, sometimes retroactively. This caused a great degree of uncertainty and rendered strategic planning around the provision quite difficult. The 2015 Tax Act (Protecting Americans from Tax Hikes or “PATH”) finally made the provision permanent.
We hope that you’ll pardon the title of this article, which is a modification of the infamous James Carville campaign mantra in 1992 – “it’s the economy, stupid!” As was the case with the original phrase, this expression is meant to be tongue-in-cheek and self-directed. The tax legislation passed by Congress and signed by the President last December seems to have rendered the itemizing of personal deductions much less beneficial for large numbers of Americans. There has been considerable discussion among fundraising professionals that the result will be a dramatic decrease in charitable contributions. Whether or not you agree with that assertion, this article is about something else - the realization that the possible benefits of reducing taxes on realized capital gains by contributing appreciated securities for split-interest gift arrangements remain as powerful as ever.
When we at PG Calc run long-term projections for charitable remainder trusts using our Planned Giving Manager (PGM) and PGM Anywhere software, we make certain assumptions about the investment performance of the trust assets. There is a fairly basic dynamic implicit in our modeling, which is that the remainder of the gift plan will be the result of the original funding amount, the amount paid out to one or more beneficiaries, and the amount earned by the trust assets. The default assumptions in PGM and PGM Anywhere are that of an 8% total investment rate of return, broken down into 5% principal appreciation and 3% income.
How do you respond to a request by one of your organization’s strongest supporters for a two-life charitable gift annuity for him and his wife when you know that his wife is at least a couple decades younger than him? Let’s suppose that the donor is 71 and his wife is 47, for example. Would you be willing to entertain a discussion about a gift annuity written for the joint lives of these two individuals?
The life income gift arrangements that make up a significant portion of planned giving – charitable gift annuities, charitable remainder trusts, and pooled income funds – are all irrevocable. In order to qualify for a charitable deduction and special tax treatment, these vehicles cannot allow any changes, and the donors cannot “take them back” in any way. There is, however, a provision that may be included in these legal arrangements which allows the donor to revoke the income interest of another person at some point in the future.