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H.R.4 - A Boon For Charities. On August 17, 2006, the President signed into law H.R.4 - the Pension
Protection Act of 2006. As you may have read in the papers, there are significant charitable benefits tacked
onto the pension provisions.
Namely, the charity lobbies have been trying for years to get a tax free roll over provision for contributions of
IRA accounts to qualified charities. We have mentioned several times the income tax and estate tax
advantages of satisfying charitable bequests with IRA accounts. The new Bill covers IRA’s only, not other
types of retirement plan accounts.
What’s New? A person 70-1/2 or older, can make charitable gifts directly from an IRA. The limit is $100,000
per year. The distribution counts against the minimum required distribution for the year. The distribution does
not have to be reported as income (and, of course, there will not be a charitable income tax deduction).
Who Benefits? Charities, including religious groups, will benefit, no doubt, providing that plan administrators
set up a procedure for handling these contributions. As of this writing, the big administrators, such as Fidelity
and VanGuard, have not established procedures and minimums for cutting checks to charities. Most likely,
they will not want to cut $50 and $100 checks to multitude of charities. How this gap will be filled is yet to be
determined.
Federal Standard Deductions. From the standpoint of the donor, taxpayers who use the standard deduction
(as is often the case with older taxpayers who often do not have huge mortgages) can now benefit from their
charitable gifts by using their IRA accounts, at least to the extent of their minimum required distributions.
Thus, by gifting the minimum required distribution, adjusted gross income (AGI) and taxable income will be
reduced.
Michigan Income Tax. There is a state income tax benefit in Michigan, Indiana and Ohio, for example, where
itemized deductions are not allowed for state income tax purposes. What the new law does is offer interesting
income tax planning opportunities, which donor taxpayers should explore with their income tax advisers.
Taxpayers should ask their tax preparer to run several hypothetical examples, satisfying pledges in different
taxable years, accelerating or delaying both contributions and withdrawals.
Significant Limitations. In addition to being restricted to IRA accounts only, the following limitations apply:
1) Charitable contributions that qualify for this special treatment are only those that are made on or after the
date that the taxpayer attains the age of 70-1/2. This might make this type of contributions difficult for taxpayers
with June birthdays in the year that they attain age 70, because there would not be much time left after they
attain age 70-1/2 in December of that year.
2) Contributions must be made to a public charity or a conduit private foundation. That means that donor
advised funds, supporting organizations, or private foundations would not qualify. Therefore, if the Grand
Traverse Regional Community Foundation were a donee, the contribution would have to be to a field of
interest fund, appropriate for a donor’s particular interest, or the endowment fund for a participating agency.
3) The special treatment would not apply to payments that would not qualify as a contributions, such as fund
raising raffles, auctions or dinners.
4) A potentially favorable limitation allows charitable payments from IRA’s that contain non-deductible
contributions, to come out of the deductible (and taxable) portions first, leaving the potentially tax free
withdrawals remaining in the account.
Conclusion. The new provisions will probably be of less benefit to taxpayers who itemize and whose
charitable contributions are not likely to exceed the 50% annual maximum. For donors who do not itemize and
possibly donors in Michigan who itemize for federal purposes, it will be a good idea to run calculations both
ways to determine whether this new charitable giving vehicle can be beneficial.
We wish to acknowledge the Leinberg Newsletter for their cogent and timely advice which is the basis for this
months’ newsletter.
If charitable giving is part of your estate planning, or if your documents need a review and update, please
contact Jim Modrall at (231) 941-9660 or any of the other attorneys listed below to schedule a no-obligation
appointment to review these matters.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A.
Pezzetti, Jr., John M. Grogan, Vicki P. Kundinger, Susan Jill Rice, Gary D. Popovits, Lawrence K. Kustra, H.
Douglas Shepherd, Jonathan J. Siebers and Karin Church at (231) 941-9660
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
Protection Act of 2006. As you may have read in the papers, there are significant charitable benefits tacked
onto the pension provisions.
Namely, the charity lobbies have been trying for years to get a tax free roll over provision for contributions of
IRA accounts to qualified charities. We have mentioned several times the income tax and estate tax
advantages of satisfying charitable bequests with IRA accounts. The new Bill covers IRA’s only, not other
types of retirement plan accounts.
What’s New? A person 70-1/2 or older, can make charitable gifts directly from an IRA. The limit is $100,000
per year. The distribution counts against the minimum required distribution for the year. The distribution does
not have to be reported as income (and, of course, there will not be a charitable income tax deduction).
Who Benefits? Charities, including religious groups, will benefit, no doubt, providing that plan administrators
set up a procedure for handling these contributions. As of this writing, the big administrators, such as Fidelity
and VanGuard, have not established procedures and minimums for cutting checks to charities. Most likely,
they will not want to cut $50 and $100 checks to multitude of charities. How this gap will be filled is yet to be
determined.
Federal Standard Deductions. From the standpoint of the donor, taxpayers who use the standard deduction
(as is often the case with older taxpayers who often do not have huge mortgages) can now benefit from their
charitable gifts by using their IRA accounts, at least to the extent of their minimum required distributions.
Thus, by gifting the minimum required distribution, adjusted gross income (AGI) and taxable income will be
reduced.
Michigan Income Tax. There is a state income tax benefit in Michigan, Indiana and Ohio, for example, where
itemized deductions are not allowed for state income tax purposes. What the new law does is offer interesting
income tax planning opportunities, which donor taxpayers should explore with their income tax advisers.
Taxpayers should ask their tax preparer to run several hypothetical examples, satisfying pledges in different
taxable years, accelerating or delaying both contributions and withdrawals.
Significant Limitations. In addition to being restricted to IRA accounts only, the following limitations apply:
1) Charitable contributions that qualify for this special treatment are only those that are made on or after the
date that the taxpayer attains the age of 70-1/2. This might make this type of contributions difficult for taxpayers
with June birthdays in the year that they attain age 70, because there would not be much time left after they
attain age 70-1/2 in December of that year.
2) Contributions must be made to a public charity or a conduit private foundation. That means that donor
advised funds, supporting organizations, or private foundations would not qualify. Therefore, if the Grand
Traverse Regional Community Foundation were a donee, the contribution would have to be to a field of
interest fund, appropriate for a donor’s particular interest, or the endowment fund for a participating agency.
3) The special treatment would not apply to payments that would not qualify as a contributions, such as fund
raising raffles, auctions or dinners.
4) A potentially favorable limitation allows charitable payments from IRA’s that contain non-deductible
contributions, to come out of the deductible (and taxable) portions first, leaving the potentially tax free
withdrawals remaining in the account.
Conclusion. The new provisions will probably be of less benefit to taxpayers who itemize and whose
charitable contributions are not likely to exceed the 50% annual maximum. For donors who do not itemize and
possibly donors in Michigan who itemize for federal purposes, it will be a good idea to run calculations both
ways to determine whether this new charitable giving vehicle can be beneficial.
We wish to acknowledge the Leinberg Newsletter for their cogent and timely advice which is the basis for this
months’ newsletter.
If charitable giving is part of your estate planning, or if your documents need a review and update, please
contact Jim Modrall at (231) 941-9660 or any of the other attorneys listed below to schedule a no-obligation
appointment to review these matters.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A.
Pezzetti, Jr., John M. Grogan, Vicki P. Kundinger, Susan Jill Rice, Gary D. Popovits, Lawrence K. Kustra, H.
Douglas Shepherd, Jonathan J. Siebers and Karin Church at (231) 941-9660
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
| WEALTH CONSERVATION: PROFESSIONAL ALERT Brandt, Fisher, Alward & Roy, P.C. |
| If you would like to receive future editions of the monthly Wealth Conservation Newsletter directly to your e-mail account, please e-mail our office using the following link: Estate Planning Newsletter |
| Brandt, Fisher, Alward & Roy, P.C. Attorneys at Law |
| August 2006 CHARITABLE GIFTING MADE EASIER by James R. Modrall III, J.D., C.P.A. |