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SECURE Act Q&A

What Fundraisers Are Asking

Below are questions and answers by those in philanthropy across the nation. Use the answers as a guide, and not as legal advice. Thanks to Jonathan Gudema, Esq., for helping us with the answers.

What is the SECURE Act

The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act, was signed into law on Dec. 20 by President Donald Trump after passage by Congress. The far-reaching bill includes significant provisions aimed at increasing access to tax-advantaged accounts and preventing older Americans from outliving their assets.

What is the number one approach you recommend when making or soliciting for current donation needs?

Most people still don’t know about direct IRA giving!  You should have an on-going “did you know” campaign about direct IRA giving – for the foreseeable future.  Did you know that you can make tax-free gifts to ______ (charity) _____ from your IRA if you are 70 ½ and older?  Did you know that if you are no longer an itemizer, you can still make a direct IRA rollover gift and avoid taxes on those funds – the equivalent of a charitable income tax deduction?  Did you know that direct IRA giving qualifies for your RMD – avoiding taxes on your RMDs if you don’t need those funds.  Keep questions like this in front of your older donors as much as possible.  Once someone uses it, they are likely to use it going forward!

What steps should a nonprofit take before becoming the trustee of a CRT?

First, this is something that the board should approve of in advance – it involves fiduciary liability (the process of seeking board approval may make this a mute point as many boards will not agree). Second, make sure your home state law allows your nonprofit to do this and under what parameters.  For example, New York allows it but the nonprofit can not take a trustee fee and should have an irrevocable interest in the trust.  Third, carefully develop a series of protocols and gift acceptance guidelines for when your nonprofit can accept trusteeship – you may only want to do this in unusual circumstances. You will also want to make sure finance staff are knowledgeable and experience enough for this – not all nonprofits are ready to take responsibility for managing large sums for other beneficiaries.

What are some questions to ask donors when exploring the best way they can incorporate philanthropy in their estate plan?

Develop a “legacy opener” – a question or series of questions that you feel comfortable asking donors designed to encourage donors to speak about what kind of legacy are they looking to establish with family, friends, community, your nonprofit community, etc… Once you get this conversation going, the details of “how” to do this is easy.

When is it appropriate to move an IRA or Roth to a CRUT?

Roths are best left to family or other individuals since the donor paid taxes upfront so that an individual can receive those funds and the growth later tax-free (nonprofits get it tax-free either way). As for an IRA to a CRUT, this is not an option to consider now that the Stretch IRA is no longer available. The only time this would be appropriate is in one’s estate – never while alive. The donor’s attorney would need to add language in the estate documents and confirm with the IRA plan that the IRA funds will be directed to establish a CRUT upon the donor’s passing. If done correctly, there will be no income taxes due. It is important for the donor to have competent counsel to make sure this is done correctly.

I have a donor with a $3 M IRA looking to achieve something similar to what he intended with the stretch that has now been eliminated. He wants to know ...

Can he leave his IRA to his two daughters and then in the 10th year, when they are required to pull all the money, can the daughters create a Charitable Reminder Trust to provide income, avoid taxes, and ultimately benefit a charity?

Without fancy lawyering, the daughters would have the choice in that 10th year to put the funds in a CRT. To force such an event might be possible with special trusts that lawyers concoct but you would have to find counsel to help with that. In any case, there would be a taxable distribution event in that 10 year on all of the funds. The daughters would be entitled to some sort of income tax deduction for a portion of the amount going into the CRTs but it would not come close to offsetting the taxes. I would recommend speaking with the IRA company to see if they offer any options that would help.

What key talking points are recommended to seek a QCD from someone who is older than 70.5, but not yet 72?

Same as any IRA giving (besides the RMD requirement).

Can inherited IRAs to an heir younger than 70.5 be given as a QCD?

No. The heir could withdraw funds, and then gift them to charity with a mostly offsetting income tax deduction but we would recommend consulting a CPA in advance to make sure you are happy with the result.

Are donors who have already inherited beneficiary IRAs (by 12/31/2019) "grandfathered in" under the old rules for distribution?

Yes.

Is the QCD cap still $200 K for those filing jointly?

Yes, each spouse is entitled to use the IRA Rollover Provision for up to $100,000. There is no such thing as a joint IRA account so if spouses want to gift $200,000 in one year from their IRAs, they would need to make sure $100,000 came out of each of their accounts. By the way, QCDs do not appear on tax returns so it is irrelevant for IRA rollover giving whether spouses file jointly or separately.

Can I make a QCD transfer into a Donor Advised Fund?

No, donor advised funds, private foundations and supporting organizations are all ineligible for IRA rollover giving. It is a good idea to make sure the charity you are giving to is not one of these three. Supporting organizations often look like regular 501c3 charities – ask to see the charity’s IRS exemption letter where it will be revealed which type of organization it is.

I've read in several sources that taxpayers who turned 70.5 prior to 1/1/2020 will still have to take RMDs and cannot delay until 72.

That is correct.

An advisor told me that there is a lifetime limitation of $100k on a QCD satisfying the RMD. Their interpretation is that after the donor reaches $100k in QCD that it no longer counts toward the RMD. Have you heard anything similar?

Find a different advisor – that statement is not correct whatsoever

If you are 69 TODAY, when can you start using a QCD?

You must wait until your 70 ½ birthday to make the request.  Count 6 full months from your birthday and wait one more day.

Do donors get any kind of RMD credit for a QCD before age 72?

For donors who reached age 70 ½ by 12/31/19, QCDs still qualify for RMDs. For those turning age 70 ½ from 1/1/20, there are no RMDs until you reach 72 and no credit for QDCs made before age 72.

If the QCD is made BEFORE age 72, is there any credit for it against future RMD?

No.

What are the tax or future RMD ramifications for a donor who turns 70.5 in 2020 and makes a QCD in 2020?

No RMD credit for any QCD made prior to age 72 and the start of your RMDs.

Can you remind us what the difference is between RMD and QCD?

Two totally different things that are linked.

RMD is your required minimum distribution (as determined by the IRS) once you reach the requisite age (now 72) – this is basically an annual amount based on your life expectancy each year that you are required to withdraw and pay income taxes on (unless you opt to send those funds directly to charity instead via the IRA giving provision). QCDs, qualified charitable distributions, are direct charitable gifts from your IRA accounts for those 70 ½ and older that are not subject to income tax, must be to regular 501c3 public charities, and be no more than $100,000 in a single year. QCDs also can satisfy your RMD, if you would rather the funds go to charity instead of paying taxes on them. If you would like to make a QCD to stratify your RMD, be sure to make the QCD before taking any IRA withdrawals as there is no way to undo the taxable withdrawal (unless you roll it back into another IRA account but see counsel before attempting this).

Can an IRA beneficiary use the RMD as a QCD?

Assuming the beneficiary is a spouse who rolls her spouse’s inherited IRA into her own account, all regular rules would apply. For all others who can not roll an inherited IRA into their own, QCDs would not apply. You would have to withdraw the funds and donate them separately, with some potential tax issues (see help of a CPA).

Do we need to change how we issue receipts?

No.

In light of the fact that QCDs generally are receipted or acknowledged differently from regular tax-deductible gifts, how do you recommend charities receipt these gifts without knowing whether a donor has made deductible post-70-1/2 IRA contributions and has a "running tab"?

Just acknowledge the gift and always include a caveat to review the deductibility with your tax professional. A good practice in any case.

I was under the impression the SECURE Act only applies to individuals who will turn 70 1/2 in 2020 or later years. Individuals who turned 70 1/2 by December 31, 2019, must continue taking RMDs as under the former law.

Correct.

Would it make sense to roll your IRA into your company plan if you plan to continue to work.

Maybe but I doubt your company plan with allow this.  It usually goes in the other direction.

What type of retirement plans are affected by the new law?

There are provisions in the SECURE Act affecting all types of qualified retirement plans.

What’s the impact on baby-boomers?

Most baby boomers (those turning 70 ½ after 1/1/20) will get more time to build their retirement accounts (later RMD start age) and also have the ability to make additional contributions to their IRAs after age 70 ½, if still working. They will also lose the Stretch IRA, which was a very important aspect of planning for larger IRA accounts.

Will older donors be more interested in CGAs because of the SECURE act?

It is not clear that this law will have any impact whatsoever on CGA interest.

What if you were 70.5 in 2019? Can you make additional contributions to the IRA for 2019?

For 2019, if you’re 70 ½ or older, you can’t make a regular contribution to a traditional IRA. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.

For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.

I heard there is some kind of offset of the QCD if I make additional contributions to my IRA after I turn 70.5. How does that work?

Based on what we know now, and that may change, it appears that anyone contributing to IRAs past age 70 ½ will lose QDC status for that amount.  In other words, if you contributed the maximum amount to your IRA in 2020 for a 70 ½ or older person, $7,000 being the maximum, then the first $7,000 of your QDC in that year will be considered as a distribution to you (taxable as income but also eligible for an income tax deduction).  Our advice though is to review this with your tax professional as this aspect of the law is not clear.

Who is this SECURE Act really making secure?

Those who are able to save more in their retirement accounts due to the law – it does provide several important opportunities for people to increase their retirement accounts. In any case, the name of law is pretty useless in any case.

How will this new law affect retired donors who make QCDs?

Not at all, unless they unretire and try to add funds to their IRAs – see answer above for that question.

So what’s the minimum age for QCD?

Unchanged – age 70½.

Should we tell donors about the new SECURE Act?

Absolutely – this is a great opportunity engage your donors about the importance of IRA rollover giving and beneficiary designations.

Can you still use the QCD to reduce the RMD?

Yes, once you reach the new RMD age of 72.

Any strategies that married couples can use to continue to contribute to their IRAs and to make QCD gifts?

See answer above on QDCs if still making contributions to IRAs.

So what’s the bottom line for fund raising?

This is a good thing. More money in IRAs and other retirement accounts – which is the likely result of the law – means more opportunities for planned gifts from these assets.

What steps should a nonprofit take before becoming the trustee of a CRT?

This is something that the board should approve of in advance – it involves fiduciary liability (the process of seeking board approval may make this a mute point as many boards will not agree). Second, make sure your home state law allows your nonprofit to do this and under what parameters.

For example, New York allows it but the nonprofit can not take a trustee fee and should have an irrevocable interest in the trust.  Third, carefully develop a series of protocols and gift acceptance guidelines for when your nonprofit can accept trusteeship – you may only want to do this in unusual circumstances. You will also want to make sure finance staff are knowledgeable and experience enough for this – not all nonprofits are ready to take responsibility for managing large sums for other beneficiaries.

What are some questions to ask donors when exploring the best way they can incorporate philanthropy in their estate plan?

What kind of legacy do they plan for themselves?  That is the only question that matters.

When is it appropriate to move an IRA or Roth to a CRUT?

Not recommended.

What key talking points are recommended to seek a QCD from someone who is older than 70.5, but not yet 72?

Same as before, except the RMD benefit doesn’t apply yet.

Can inherited IRAs to an heir younger than 70.5 be given as a QCD?

No.

You can fund a DAF with IRA assets, but not through a QCD. You'd have to take the distribution into income. Correct?

Correct, I am assuming you mean that you can withdraw funds form your IRA, incur taxable income, and then use those to fund a DAF and then receive an income tax deduction for the new gift.

What is your suggestion to get them to increase that gift!?

Just keep making your case to the donors and keep the relationships strong!

You've suggested set up testamentary unitrusts to be funded with IRA assets. Would an annuity trust work? Is there a problem with getting all of the IRA assets rolled into the annuity trust at the same time, given that the annuity trust needs to be funded only once?

The reason Unitrusts have been mentioned is because there no issues with it passing any IRS tests. If you use an Annuity trust, particularly for the life or lives of two donors, those donors might need to be in their 70s or the annuity trust will fail the IRS tests.  Another option is a Testamentary CGA – but if the charity once do an immediate payment CGA to younger donors, there will have to be a contingency for deferred CGAs written into the agreement with the charity.

If you have several IRAs, can you give $100K from each? Or only $100K per person in any one year?

Not correct. An individual is limited to $100,000 from all IRA accounts for QCD gifts in a calendar year.

When do you recommend (what times of year) marketing QCDs to donors?

All the time, particularly in the early fall – around September – reminding donors that they may avoid tax on RMDs with QCDs.

What questions should a nonprofit organization ask itself before accepting trusteeship of a fund and commit to annual payments to a donor/heirs?

This is something that the board should approve of in advance – it involves fiduciary liability (the process of seeking board approval may make this a mute point as many boards will not agree). Second, make sure your home state law allows your nonprofit to do this and under what parameters.

For example, New York allows it but the nonprofit can not take a trustee fee and should have an irrevocable interest in the trust.  Third, carefully develop a series of protocols and gift acceptance guidelines for when your nonprofit can accept trusteeship – you may only want to do this in unusual circumstances. You will also want to make sure finance staff are knowledgeable and experience enough for this – not all nonprofits are ready to take responsibility for managing large sums for other beneficiaries.

Does a child who inherits a ROTH IRA pay any tax on the withdrawal? If not, then a lump sum taken out could be put into a traditional IRA.

There are no taxes on the withdrawal of an inherited Roth IRA.  The person can then do what he or she wants with the funds, including contributing to an IRA (remember there are annual limits to IRAs, $6,000 for younger folks, $7,000 for older).

A couple, both age 70, each has a $2M IRA. They inquired if funding a CRT at first to die for the remaining spouse is wise. The entire estate will come to our university.

It is possible to do that plan and then the surviving spouse will have CRT income for the rest of his or her life, with remainder to university.  They will then not be adding to the other’s IRA and increasing the survivor’s RMDs. But, remember that CRT payments are taxable.  Also, the surviving spouse would have no way to access the principal should there be a need.  I would suggest consulting with their estate planning attorney, who probably might recommend just having the IRA rollover into the surviving spouse who will then leave the remainder to the university.

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