Potential Law Changes for Gifts of IRAs to Charity

In the event that an individual gives appreciated stock to the charity of their choice, they are able to take a charitable deduction for the full value of the gift despite the fact that they do not have to recognize any capital gain for the increase in value of the stock. This presents a charitable giving opportunity for many individuals which is far better than a cash gift.

Congress is currently considering whether the same sort of treatment could be afforded individuals who give large IRA assets to charity. Many IRAs have grown enormously during the 90’s. It is not unusual for those funds to lose up to 75% of their value in estate and income taxes at the account holder’s death.

Many individuals have IRA funds payable to a charitable organization directly or to a charitable remainder unitrust at their death. Transferring the IRA directly to a charity avoids both the income tax and the estate tax. Transferring the funds to a charitable remainder trust allows the funds to benefit the family members during their lifetime with an ultimate distribution to charity. A charitable remainder trust will avoid 100% of the income tax and a portion of the estate tax on the IRA funds.

For many years, Congress has considered proposals to allow individuals to have the same charitable giving opportunities during their lifetime that they have at their death. At the present time, an individual must recognize taxable income if any of the funds are transferred to a charity during their life. It appears fairly likely that Congress will soon allow individuals to transfer their IRAs directly to a charitable organization, without recognizing income. Unfortunately, if income is not recognized, it seems as if the individual will not be able to take an income tax charitable deduction. It is also possible, but not as likely, that lifetime gifts to charitable remainder trusts will receive similar treatment.

In the event that either of these rules change, it will present a tremendous planning opportunity for individuals with large IRAs, and a tremendous fundraising opportunity for charities.