Budget Calls for Congress to Do Away with 2010 Estate Tax Repeal

Posted on April 30, 2009 by Karen Meckstroth

This week, the House and the Senate approved the concurrent budget resolution for fiscal year 2010.  The budget calls for a permanent extension of the 2009 federal estate tax levels -- in other words, a $3.5 million federal estate tax exemption per individual and a 45% top federal estate tax rate.  

The budget also calls on Congress to "extend incentives for enhanced charitable giving from individual retirement accounts, including life-income gifts."  This language refers to extending and expanding the IRA charitable rollover.

The budget resolution does not change current tax laws.  It is a nonbinding document.  Unless Congress acts, the estate tax will be repealed for 2010 and will return with a $1,000,000 federal estate tax exemption in 2011.  But the budget is a blueprint for major tax legislation and indicates Congressional support for a permanent extension of the 2009 federal estate tax levels.

The New York Times and the Wall Street Journal reported on Congress's approval of the budget resolution.

If you'd like a nice roadmap to the federal budget process, the Center on Budget and Policy Priorities offers this overview.

 

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Will Congress Expand the IRA Charitable Rollover This Time?

Posted on April 24, 2009 by Karen Meckstroth

Currently, individuals who are at least 70 1/2 are able to make tax-free charitable gifts directly from their IRAs to eligible charities.  This law is set to expire at the end of the year.  There are also some important restrictions under the current law:

  • The donor must be at least 70 1/2
  • Charitable IRA distributions are capped at $100,000 annually
  • Gifts cannot be "life income" gifts -- the IRA distribution cannot be made in exchange for a charitable gift annuity, to a charitable remainder trust, or to a pooled income fund
  • Gifts cannot be made to private foundations, donor advised funds, or supporting organizations

On April 22nd, Senator Dorgan (D-ND) and Senator Snowe (R-ME) introduced The Public Good IRA Rollover Act of 2009 (S. 864) to make the charitable IRA rollover permanent and expand current law.  Versions of this bill were introduced in prior sessions of Congress, but did not survive.  The Partnership for Philanthropic Planning issued a bulletin that describes the new Senate bill:

This legislation would make the IRA Charitable Rollover permanent, remove the $100,000 annual limit on donations, provide IRA owners with a planned giving option starting at age 59½, and allow for distributions to supporting organizations, donor-advised funds, and private foundations.

Companion legislation (H.R. 1250) was introduced in the House last month. 

The bill contains the following provisions: 

  • Donors still have to be 70 1/2 to make direct charitable gifts from their IRAs
  • Starting at age 59 1/2, donors can make planned gifts using IRA funds -- i.e., gifts in exchange for a charitable gift annuity, gifts through a charitable remainder trust or to a pooled income fund (with special rules, of course)
  • The $100,000 annual cap is removed
  • Gifts can be made to public charities and private foundations, donor advised funds and pooled income funds

The House and Senate bills are in committee.  As you know, many bills don't get any further.  But if the bills survive, I'll continue to report on their progress.  The ability to make lifetime tax-free gifts of IRA assets to charity has been an attractive choice for some individuals who are concerned about the heavy taxation of IRA assets and are charitably inclined.

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Building an Endowment & Planned Giving in a Recession

Posted on April 10, 2009 by Karen Meckstroth

I was in San Diego yesterday to give a presentation to the Board of Directors of Employment & Community Options, a public charity that provides employment services for disabled adults in multiple counties in California. 

The presentation focused on endowment building and planned giving.  We discussed why an endowment is key to the survival of a charity -- how, for example, an endowment can safeguard a charity if annual gifts or government funding drops off.  We talked about planned gifts -- gifts like bequests, gifts of life insurance, and charitable remainder trusts.

You might think that all charitable giving decreases in an economic downturn, when just about everyone is feeling the pinch.  But some recent studies conclude that charitable bequests (gifts in wills and revocable living trusts) actually increase in recessions.  (Thank you to the Nonprofit Law Prof Blog.)

This makes sense to me based on my own work with clients.  A lot of people want to make charitable gifts, but they may be unwilling or unable to part with any of their income.  Instead, they might name a charity in their will or trust to receive a specific sum or a percentage of their estate after their death. 

If you want to make a bequest and already have a will or trust in place, you should see your estate planning attorney to draft a codicil (for a will) or trust amendment (for a trust).  If you are doing your estate plan for the first time, part of the planning process should focus on your charitable goals, including whether you want to make gifts to charities in your will or trust.

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