If you or a family member has reached the age of 70 ½, you might have heard of a tax benefit known as the Qualified Charitable Distribution (QCD), which allows you to direct up to $100,000 annually from your IRA to a qualified charitable organization (which includes a designated or field-of-interest fund at the community foundation). You don’t pay income taxes on the distribution, and, if you are required to take minimum distributions (RMDs) because you have reached the age of 73, the QCD counts toward your RMD.
of the many components of a new set of laws known as “SECURE 2.0,” which was
passed at the end of 2022, is a provision that expands the QCD by adding the
opportunity for taxpayers to make a one-time $50,000 QCD transfer to a
charitable remainder trust (CRT) or other split-interest gift such as a
charitable gift annuity (CGA). This part of the new law is called the “Legacy IRA” provision.
of the new laws, many charitable-minded individuals and families are interested
in learning more about CRTs and CGAs. CRTs and CGAs are similar because each
provides an up-front tax deduction, a steady lifetime income stream, and a
remainder gift to a charity, such as your fund at the community foundation,
which will receive what’s left over at the end of the income term, such as your
are often easier to establish than CRTs, especially if you plan to establish
the vehicle with $50,000 or less. This makes the CGA an ideal tool to take
advantage of the Legacy IRA provisions for QCDs noted above.
CGA, like any other annuity, is a contract. You agree to make an irrevocable
transfer of cash or assets to a charity, such as the community foundation. In
return, the charity agrees to pay you (or a designated beneficiary such as a
spouse) a fixed payment for life. You are eligible for an immediate income tax
deduction for the “present value” of the future amount passing to
amount of income you can receive from a CGA is determined according to national
standards, and it is based on “rate of return” assumptions that are revised
from time to time based on what’s going on with interest rates.
contrast, a CRT is actually a trust–a separate legal entity. To establish a
CRT, you will work with your attorney to execute a trust agreement and also
work with a person or entity (such as the community foundation) who will serve
as the trustee. After you transfer stock or other property (ideally
highly-appreciated assets) to the trust, you’ll receive an income stream from
the trust based on a percentage specified in the trust document (and subject to
team at the PACF looks forward to working with you and your
advisors to determine whether a CGA or CRT might be a good fit for your
charitable plans. For example, we will explore whether you already intend to
leave gifts to charity following your death, discuss your income requirements
while you are living, and review the types of assets you own and whether there
is a particular highly-appreciated asset or assets (such as stock or real
estate) that would make an ideal gift to a CGA or CRT to reduce your capital
gains tax exposure.
As always, please reach out to the team at the PACF whenever you or your advisors have questions about charitable planning techniques. We are happy to collaborate as you build your financial and estate plans to include support for your favorite charities and the community you love.