Top 3 Things I Learned in 2024
Happy New Year! I hope 2025 is treating you well so far.
Last year I attended a number of conferences. They were all top-notch, but some of the sessions were extra-special. They taught me things I didn’t know or reminded me of important things I had forgotten. These are the top 3 things I picked up in 2024.
- SPECIAL RULES FOR IRAS
- PLAYBOOK FOR A HEALTHY GIFT ANNUITY PROGRAM
- YOU CAN SELL A CRT INCOME STREAM
Special Rules for IRAs
Christopher Hoyt of the University of Missouri Kansas City Law School spoke at the Minnesota Gift Planning Association annual conference. His breakout session took us on a deep-dive into the rules for IRAs. Back when I worked in financial services, I had many of these rules committed to memory, but that was a while ago and I had forgotten some important things. Thank you, Mr. Hoyt for bringing me back up to speed.
If someone dies before their Required Beginning Date (RBD), there are no Required Minimum Distributions (RMDs) for the inheritor – just withdraw within 10 years. [Required Beginning Date is the deadline for taking the first RMD from an IRA or other qualified retirement account.] Outside of a few exceptions, the inheritor will have to start taking RMDs right away when they inherit a retirement account. In this case, they just have to empty the account within 10 years of the decedent’s death.
If a charity (or other non-human entity) is named as beneficiary of an IRA and that charity does not take their distribution before September 30th of the year following the death of the IRA owner, any other human beneficiaries of the IRA must withdraw the entire IRA balance within 5 years of the date of death. Normally, inheritors have 10 years to draw an inherited IRA down to $0. This exception to the rule may come as a big surprise to human heirs.
This is a big deal these days when it has become increasingly difficult for charities to withdraw money from an IRA when a donor names them beneficiary. Often the IRA administrator requires the charity to open an inherited IRA to deposit the money into before they can withdraw it. There is no law that requires this, but IRA administrators are permitted to do this if it is their standard business practice. Administrators impose other onerous and senseless requirements on charities that delay their receiving money their donors wanted them to have. You may have run into these things already. Thankfully, there are ways around these roadblocks. The RIFT project has created step-by-step guides and resources for charities to use with virtually all of the IRA administrators to help charities circumvent these delay tactics and collect the money fast. Here’s a happy message I got from one of my clients after they used the RIFT resources I recommended.
I’m so thrilled to share that we just received an IRA payment for $409,880.87! We thought our CFO would need to open an inherited IRA to get this one through the door, but thanks to you we were able to use the RIFT process instead. We submitted the paperwork on Oct. 28 and received the check on December 3rd. Not a bad turnaround!
The RIFT project is made possible by a group of dedicated volunteers who feel so passionately about getting IRA funds into the hands of charities quickly, that they give countless hours of their time and expertise to this cause. The next time you have to jump through any hoops to collect money from a deceased donor’s IRA, be sure to use the RIFT project resources and make your life a LOT easier.
Playbook for a Healthy Gift Annuity Program
A team from Washington University in St. Louis, Missouri delivered a breakout session at the National Association of Charitable Gift Planners annual conference. They showed us how to keep a CGA program healthy. I used to manage a national gift annuity program and still I took away a long list of best practices to bring to my clients.
Evaluate the financial health of each and every gift annuity at least annually. Each gift annuity should be labelled “healthy”, “at risk”, or “underwater”.
Healthy means the current value of the gift annuity is more than 50% of the original gift amount. That number may seem a little low to you, but the ACGA rate table that most charities use is designed to leave – on average – 50% of the original gift to the charity at the donor’s death.
At Risk means the current value of the gift annuity is below 50% of the original gift amount.
Underwater means that the gift annuity will run out very soon. Remember, the charity is still required to make the annuity payments to the annuitant – even if their gift annuity runs out of money. This is a financial risk to any charity issuing charitable gift annuities.
Be sure to send an annual statement to each gift annuity donor. Be transparent about how their CGA is doing so they are not caught off guard if in the future it is suddenly at risk of running dry. You may want to include a CGA statement showing their balance.
If a gift annuity is at risk, reach out to the donor to let them know and outline their options. Send the donor a letter letting them know that their gift annuity balance is getting low, but reassure them the payments will not stop if it runs dry. Also, let them know of their options and invite them to contact you to discuss them.
- Do nothing: The CGA may run dry. The charity won’t receive anything in the end, but the payments to the annuitant won’t stop.
- Donate the remaining CGA balance: This terminates the gift annuity – no additional payments would be made to the annuitant. The donation entitles them to an additional charitable income tax deduction. This option can significantly reduce financial risk to the issuing charity.
If/when you talk to the donor about their options, it’s a very good practice to have that conversation in person. Many gift annuitants are elderly and the conversation would go much better in person. Also, they may want to invite a family member or financial advisor to the meeting.
The Washington University team even offered their advice on how to measure the success of a donor outreach program like this.
- Number of Donor Conversations
- Number of Conversations about Additional Gifts
- Amount Retained Through Relinquishment/Donation of Remainder
- Positive Donor Feedback
I want to extend a BIG thank you to the WashU team for their exceptional presentation. I’m already implementing these best practices with clients.
You Can Sell an Income Interest from a Charitable Remainder Trust
In my 22 years of gift planning experience, I had never come across this concept. Kyle Wesely from the CPA firm of Wesely & Wesely delivered a breakout session at the MN Gift Planning Association annual conference on charitable tax planning. He walked us through a number of tax considerations that go along with charitable gift planning. We learned there is a market for selling an income interest from a Charitable Remainder Trust.
Quick review: a CRT is a tax-exempt trust. Donors make contributions of assets to the trust. The trust makes payments to them or other people for their lifetimes or a period of years. When the trust comes to its scheduled end, the remainder is distributed to charity. If someone is receiving income from a CRT and they’d rather have a lump sum distribution, there is a market to sell that stream of payments to a third party. They will probably receive only a portion of the future expected income, but it’s immediate and that may be appealing to them.
Furthermore, the sale of the income stream is taxed at capital gain rates. If you’re unfamiliar with tax rates – capital gain rates are some of the lowest rates you can pay on income. Even if the CRT was established with highly-taxed ordinary income assets – like an IRA – the sale of the income stream is still considered a capital asset. This raises a lot of possibilities for income beneficiaries of a CRT.
Thank you, Kyle for teaching this old dog a new trick!
Consider Attending a Gift Planning Conference
Continuing education is for EVERYONE. I’ve been at this for 22 years and I still learn new things at every conference I attend.
Join your local gift planning group and/or the National Association of Gift Planners. Attend their conferences. You and your organization will benefit every single time. The price of admission is worth it.
I hope to see YOU at an event in 2025!
