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Jack Owen’s Tax-Exempt Alert WINTER 2023

At a recent meeting of our local planned giving council, I discussed some year end surprises in new legislation commonly known as “SECURE 2.0”, a part of the Consolidated Appropriations Act of 2023 (“CAA”). While many CAA provisions affect retirement plans, a few affect charitable giving. This legislation was signed into law by President Biden on December 29, 2022.

The provisions affecting charitable giving are generally effective January 1, 2023, and a brief summary was given at the meeting as follows:

  • The definition of qualified charitable distributions (“QCDs”, or commonly known as IRA charitable rollovers) was expanded to allow QCDs to be paid into charitable gift annuities (“CGAs”) and charitable remainder trusts (“CRTs”). The amount is limited to a maximum of $50,000, must be completed in a single year and can be made only once during the lifetime of the IRA owner.
  • Starting in 2024, the $100,000 annual limit on QCDs is indexed for inflation.
  • Within the SECURE 2.0 retirement provisions, the current age for making required minimum distributions is changed to 73 in 2023 and 75 in 2033. This change does not affect the QCD eligibility age of 70½.
  • No change was made to restore the universal charitable deduction for non-itemizers.
  • Finally, QCDs still cannot be made to donor advised funds at community foundations.

These changes are not perfect but a good start. Hopefully, Congress will act to expand the IRA charitable rollover even further in the future.

As with almost all tax law, there are a few quirks and potential pitfalls, including:

  • All payments made from a CGA or CRT funded with a $50,000 QCD must be fully taxable. This is generally the case with CRT payments, but is an important difference for a CGA.
  • A $50,000 QCD can only be made to a CRT or CGA funded with IRA assets. So existing trusts cannot receive QCDs from IRAs, and only new CRTs will qualify.
  • The statute also says that CGA payments attributable to a QCD must be at least 5%. This differs from current CGA rules which base payments on age and may be less than 5%.
  • Deferred CGAs cannot be used because Secure 2.0 requires payments to begin within one year of the date of funding.
  • Multiple life payments are limited to the IRA owner and their spouse.

The $50,000 one-time limit in Secure 2.0 is quite low for CRTs, and may be below the required minimum in the planned giving policies of many charities and below the acceptable minimums of corporate trustees. An unanswered question is whether a donor and spouse can each fund the same CRT with a one-time $50,000 QCD from each of them. A $100,000 CRT is much more attractive to a corporate trustee and is usually at or above the minimums in many planned giving policies.

As always, the devil is in the details. While the expansions to the IRA charitable rollover are welcome, they come with complications.

Please do not hesitate to contact any attorney at Owen Law Group if you have any questions on the above changes or any other matter related to charitable organizations.

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