Now that we have entered a pandemic that makes life look very little like what it looked like only a few weeks ago, many generous individuals are looking for ways to help others in their communities.
To the extent you are looking for ways to help and thinking about tax and estate planning considerations at the same time, below are a couple of suggestions that might be useful.
The Setting Every Community Up for Retirement Enhancement Act (also known as the SECURE Act) was signed into law by President Trump in December 2019 and became effective Jan. 1, 2020. The SECURE Act made a number of changes to retirement accounts, but of special note is that any inherited retirement account must be distributed within 10 years of being received. This change makes retirement accounts less favored than before, from an estate planning perspective, because passing them to loved ones may incur significant income tax disadvantages. To the extent they are available, other assets should be preserved as better ones to give to loved ones after your death. Because of this change, retirement assets are great candidates to use during your lifetime for your general living expenses, and to the extent you are charitably inclined, to make charitable gifts.
The best method to make use of retirement assets for charitable gifts is to make a qualified charitable distribution (QCD). To be a QCD, a person who is age 70 ½ or older may direct their retirement plan administrator to make a distribution of up to $100,000 per year directly to a charity or charities of their choice. The QCD distributions from your retirement accounts are never distributed to you and therefore are not taxable income to you. However, the amount of the QCD counts toward your required minimum distribution if you are over age 72 — when you are first required to take required minimum distributions. Since the QCD never becomes income to you, you are not required to pay federal or state income tax on the amount. This is especially helpful in states, like Ohio, that do not provide for a charitable income tax deduction under state law.
QCDs cannot be made to some charities, like family foundations, nor to donor-advised funds. However, to the extent you have assets sitting in a donor-advised fund, now is a great time to make use of those to make gifts as well.
If you are uncertain about which organizations to give to that will make the most impact with respect to COVID-19 specifically, a number of community foundations have created COVID-19 specific funds. The COVID-19 funds administered by community foundations will stay in the local area and will be used to support local organizations affected by and disaster recovery efforts made necessary due to COVID-19. QCDs can be made to these specific funds.
Please contact your Taft attorney to discuss these methods to effectuate your charitable giving during this time.