The principal rules for direct transfers from an IRA to a qualified public charity are that the IRA owner must be 70½ or older and that the transfer is for no more than $100,000 each year. A 2010 transfer qualifies for the required minimum distribution. It must be to a public charity either outright or for a specific purpose, but may not be to a donor advised fund or supporting organization. The transfer is made directly from a custodian or trustee to the charitable organization.
A very important potential 2010 benefit exists. Because Congress recognized that it is very late in the year, individuals who choose to make a qualified charitable distribution (QCD) rollover from their IRA trustee to a charity may make their 2010 charitable gift during 2010 or in January of 2011.
IRA Rollover e-Mail to Custodian
Many donors and clients will plan to use the IRA charitable rollover for 2010. Because it is late December, those who would like to make a very convenient gift to charity should immediately contact their IRA custodian. Most financial companies who are IRA custodians have an e-mail address on their website for client contacts.
Donors and clients may use the following sample e-mail text to notify their custodian. Many GiftLegacy charities have also posted an example with the applicable text on their website. Donors can check the gift planning portion of the website or e-mail their charity for the specific information. Many banks and other custodians will require use of their forms, but an e-mail to them is the quickest way to start the process. If the custodian responds by e-mailing a form to a donor, he or she may print, sign and fax it back to the custodian the same day.
Example e-Mail to Custodian
Dear IRA Custodian,
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, effective from Jan. 1, 2010 to Dec. 31, 2011, permits a rollover directly from an IRA to a qualified public charity. As the owner of IRA account #_________________ that is in the custody of your organization, I request that you transfer from that account the sum of $_________________ to my favorite charity _________________ located in city _______________ with state and zip code _______________. The Treasury Tax ID Number for my favorite public charity is _________________________.
It is my intention to make a Qualified Charitable Distribution (QCD) to this charity from my IRA, which may fulfill part or all of my IRA required minimum distribution for this year.
This letter is sufficient authorization for you to make this QCD gift. However, if you require any further documents, please promptly e-mail those to me.
Cordially yours,
IRA Owner
Charitable Tax Extenders for 2010 and 2011
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 restores six charitable tax extenders that are applicable from January 1, 2010 until December 31, 2011.
The six charitable provisions include the following:
1. Conservation Gift Limits – Gifts of property for conservation purposes benefit from increased deduction limits. The normal 30% limit for appreciated property gifts is increased to 50% and the carry-forward limit is extended from five years to 15 years.
2. Food Inventory Gifts – An enhanced deduction for contributions of "apparently wholesome" food will be available for all donors. The deduction is the lesser of twice the basis or basis plus one-half of the appreciation.
3. Book Inventory Gifts – C Corporations may claim an enhanced deduction for book inventory gifts to public schools. The schools may be from kindergarten through grade 12.
4. Computers and Software – Corporations may make gifts to elementary, secondary and post-secondary schools of computer equipment. These deductions will qualify for the enhanced contribution.
5. IRA Charitable Rollover – Each IRA owner may make a transfer of up to $100,000 per year to a qualified charity. The IRA charitable rollovers are tax-free and not included in adjusted gross income.
6. S Corporation Appreciated Gifts – A Subchapter S corporation may give appreciated stock or land to charity. Only the basis of the S corporation in the donated asset will be used to reduce the shareholder basis, even though the full fair market value deduction is claimed by the shareholder.
Temporary Estate Tax Relief
On December 17, 2010, the President signed into law The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The estate tax section of the bill carries the title "Temporary Estate Tax Relief" and includes Sections 301, 302, 303 and 304. Most gift, estate and GST tax provisions will apply during 2011 and 2012.
Sec. 301 reinstates the estate tax and repeals carryover basis. Executors of decedents who passed away in 2010 are permitted to elect either to file IRS Form 706 and apply the 2010 existing laws, or to elect to use the new $5 million applicable exclusion amount and 35% estate tax rate. Because some decedents passed away early in year 2010 and the normal tax payment date has passed, the required due date for the tax return or payment of tax will be nine months after the date of enactment. For 2010 decedents, the filing date for GSTT returns will also be nine months after date of enactment.
Sec. 302 addresses the gift, estate and GSTT exclusion amounts. The applicable exclusion amount will be $5 million for 2011 and for executors who elect to apply that amount to 2010. This amount will be adjusted for inflation starting in 2012 in $10,000 increments.
The estate tax rate will be 35%. Estate tax equals $155,800 on the first $500,000 and 35% of the excess over that amount, reduced by the unified credit. The unified credit (renamed the applicable credit amount) calculated based on a $5 million estate will be $1,730,800.
The gift tax is again reunified with the estate tax. Therefore, the 2011 estate and gift tax exemptions will be the same.
For generation skipping tax transfers during 2010, the GSTT rate shall be zero. Even if the executor elects the repeal of estates for 2010 decedents, the decedent is treated as a transferor for GSTT purposes.
Sec. 2511(c) is repealed. This eliminates the concern about potential disqualification of 2010 charitable remainder trusts.
There are provisions to calculate the credit for gift taxes paid when the estate return is filed. This is necessary because there have been varying gift tax rates for many decedents. The rates of tax as of the decedent's death shall generally be used for calculations.
Sec. 303 creates marital deduction "portability." The applicable exclusion amount for a surviving spouse will be the basic exclusion amount of $5 million with cost of living increment plus the "deceased spousal unused exclusion amount." The unused exclusion will be the basic exclusion amount of the deceased spouse in excess of the basic exclusion amount used in the estate of that spouse. The unused exclusion amount will not be adjusted further for inflation. In order to benefit from this provision, the deceased spouse must die after 2010 and the surviving spouse must die before 2013, or Congress must extend portability.
If the deceased spouse transfers all assets to surviving spouse using the unlimited marital deduction, then the surviving spouse should have available the full value of both exclusions. However, the executor of the deceased spouse will be required to file IRS Form 706 to establish the amount of unused exclusion. The amount of exclusion cannot exceed twice the basic exclusion amount and only the remaining exclusion of the last deceased spouse may be utilized. The use of marital portability will require the executor to make an irrevocable election on IRS Form 706.
Editor's Note: This bill is the most significant estate planning legislation in three decades. The higher exemptions will result in very few taxable estates. Most estate attorneys and charitable gift planners will focus on the traditional planning strategies to reduce costs, prepare for senior healthcare decisions and make effective transfers to family that achieve a positive result. In the charitable arena, the larger exemptions permit greater use of a testamentary unitrust funded with IRAs or other assets. These testamentary unitrusts will increasingly be viewed as excellent methods to reduce future income taxes and permit tax-free accumulations.
Applicable Federal Rate of 1.8% for December – Rev. Rul. 2010-29; 2010-50 IRB 1 (16 Nov. 2010)
The IRS has announced the Applicable Federal Rate (AFR) for December of 2010. The AFR under Sec. 7520 for the month of December will be 1.8%. The rates for November of 2.0% or October of 2.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2010, pooled income funds in existence less than three tax years must use a 4.6% deemed rate of return. Federal rates are available by clicking here.
