Advisor Solutions - Winter Edition |
|
Greetings from the Community Foundation for Monterey County!
In the spirit of the new year and the resolutions that come with it, this issue will cover tips and ideas that can help individuals, families, and their advisors develop a thoughtful charitable giving plan. Indeed, planning is a key theme across all areas of charitable giving, especially as you help your clients budget for their 2023 donations, adopt a year-round giving strategy, take advantage of the new “Legacy IRA” rules for Qualified Charitable Distributions (QCDs), or consider the increased benefits of a Charitable Gift Annuity (CGA) as interest rates rise.
As always, the team at the Community Foundation for Monterey County is here as a sounding board. We’re just a phone call or an email away from helping you work with your clients to map out a budget-conscious, tax-savvy charitable giving plan for 2023 that provides strong support for the local nonprofits that strengthen our communities.
Thank you for the opportunity to work together.
|
|
Christine
Senior Vice President Philanthropic Services
(831) 375-9712 x126
|
|
At more than 4,000 pages, the Consolidated Appropriations Act of 2023 ("CAA") includes a wide range of provisions that impact multiple sectors. Here are three key provisions affecting donors in the new law:
-
Taxpayers may now make a one-time $50,000 Qualified Charitable Distribution (QCD) transfer to a Charitable Gift Annuity (CGA) or other split-interest gifts. Note that the law effectively mandates that the CGA be created solely for the purpose of receiving a QCD because the new statute requires that the vehicle contain only IRA assets.
-
The Required Minimum Distribution (RMD) age (previously 72) increased to 73 on January 1, 2023. The age will increase to 75 beginning on January 1, 2033. While this provision is not directly tied to charitable giving, it will nonetheless impact your clients’ overall financial plans and potentially affect the timing and strategy of their philanthropy. As a reminder, RMD refers to the mandated amount that a taxpayer must withdraw from qualified retirement plans, which include IRAs as well as 401(k)s and other tax-deferred retirement accounts.
-
The annual per-taxpayer $100,000 QCD cap is now slated to be indexed for inflation, which will allow taxpayers to give even more from their IRAs directly to charity.
Here’s what has not changed:
–Eligibility for making a QCD still starts at 70 ½. This allows taxpayers who are not yet required to take IRA distributions under the RMD rules to still take advantage of the QCD technique without the income tax hit on the distributed funds while also removing those funds from liability for future estate taxes.
–Taxpayers required to take RMDs can still count QCDs toward their RMDs, thereby avoiding the usual income tax hit on RMD dollars.
–Charities eligible to receive QCDs include designated funds, field-of-interest funds, and scholarship funds at the community foundation, but still not donor-advised funds.
|
|
Charitable gift annuities (CGAs) are becoming more attractive to philanthropists, making this planned giving vehicle a good fit for your clients who like the idea of an up-front tax deduction, a steady lifetime income stream, and a remainder gift to charity.
The popularity of CGAs is increasing for a few reasons.
Effective on January 1, 2023, the American Council on Gift Annuities voted to increase the rate of return assumption from 4.50% to 5.25%.
Second, with the passage of the Legacy IRA the new rules allow for a once-in-a-lifetime, $50,000 QCD from an IRA to a split-interest vehicle. Note that CGAs created to receive a QCD contribution are different from other CGAs in a few important respects under the new law. For example, annuity payments are taxable, and must be at least 5%.
-
Tax planning with appreciated assets
Third, gifts of appreciated assets are always a strong planning technique, especially to a CGA. When a taxpayer contributes highly-appreciated stock in a public company, for example, to a CGA, the taxpayer typically is eligible for an income tax deduction at the stock’s fair market value on the date of the gift. When the recipient charity sells the stock, the charity pays no capital gains tax. Note that the taxpayer would have paid capital gains tax had the taxpayer sold the stock. Plus, the taxpayer gets the benefit of the upfront tax deduction, presumably in a tax year where income is higher (and therefore taxed in higher brackets) than it will be when the taxpayer retires at a future date.
|
|
The first quarter is a good time to start helping your clients plan for their annual giving. With the year-end flurry of donations still fresh in many clients' minds, you may discover that clients will welcome your suggestion to make 2023 the year to get organized early, particularly as economic headwinds make planning especially important.
Options for every client's unique situation
Our team welcomes the opportunity to work with you and your clients to implement their charitable giving goals. Here are just a few of the ways we can work with you as you plan for 2023:
Your clients can create a donor advised fund with a gift of $5,000 or more and receive an immediate tax benefit. They recommend grants to support the causes and organizations they care about. The CFMC handles all administrative details and issues grants to nonprofits in the name of the fund. Donor advised funds are less costly and easier to administer than other forms of philanthropic giving. They make an excellent vehicle for estate gifts.
A client can establish a bequest to a fund at the CFMC through a will or trust or through a beneficiary designation on a qualified retirement plan or life insurance policy. The CFMC can provide sample bequest language.
- Retirement plan beneficiary designations
Bequests of qualified retirement plans can be extremely tax efficient. Funds flowing directly to a client’s fund at the CFMC from a retirement plan after the client’s death will not be subject to income tax or estate tax.
Consider encouraging clients to involve their children and grandchildren in philanthropy, especially when the clients are working with the CFMC through a family donor advised fund or other collaborative vehicle.
Remind clients that they are eligible for an income tax deduction for lifetime charitable gifts, and the gifted assets are no longer subject to future estate taxes.
Consider more complex giving vehicles, including charitable remainder trusts, charitable gift annuities, and gifts of closely-held stock. The CFMC can work with you to establish these structures to help facilitate your clients’ charitable giving goals and meet the clients’ financial and tax goals at the same time.
We look forward to working with you in 2023!
|
|
Questions?
Please contact Cecilia Romero, Director of Gift Planning, at ceciliar@cfmco.org or (831) 754-5880 x124.
|
|
We’re pleased to share our Guide to Gift Planning to help your clients consider the best options for their charitable giving. The guide covers many ways donors can give during their lifetime or through their estate. You can view or download a copy online, or to request printed copies, please contact Cecilia Romero at 831.754.5880 x 124.
|
|
The team at CFMC is pleased to be a resource and sounding board as you serve your clients. We understand the charitable side of the equation and are happy to help you find the best solutions to meet your clients’ needs. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. |
|
To inspire philanthropy and be a catalyst for strengthening communities throughout Monterey County |
|
|
|
|
|
|
