Article on Tax-Efficient Charitable Giving of Savings or Retirement Benefits

Albert Feuer recently published an Article entitled, Tax-Efficient Charitable Giving of Savings or Retirement Benefits, Wills, Trusts, & Estates Law eJournal (2018). Provided below is an abstract of the Article:

Individuals often fund charitable gifts with their savings or retirement benefits. However, such benefits, other than those from a Roth individual retirement arrangement, are generally included in the individual’s gross income when received, and may not be deductible from the donor’s income. This article discusses how savings or retirement lifetime and survivor benefits may be used to fund charitable contributions in a tax-efficient manner. These tax advantages may be offset by other considerations, tax and otherwise. It is generally advisable to use beneficiary designations to make charitable contributions of survivor benefits, but such designations may not be permissible. Although a will or trust may also be used to make the desired contributions of savings or retirement benefits, this approach may raise non-charitable tax-planning issues. The most favorable tax consequences arise from special or demonstrative (pecuniary) bequests, which are treated like plan designations. General (pecuniary) bequests, unlike residuary bequests, may cause a mismatch between income and charitable deductions.

Lifetime savings or retirement benefits, unlike survivor benefits, often need not be distributed immediately. Thus, they may often be replaced with other sources for charitable contributions without adverse tax consequences. Qualified charitable distributions (“QCDs”), which result in an income tax exclusion and no charitable deduction, are often an advisable way to make charitable contributions if one has substantial IRAs, and has reached 70 ½. This is particularly the case for those who wish to donate amounts equal to or less than the required minimum distributions and will not be itemizing their deductions, or those very concerned about avoiding inclusion of distributions in gross income, such as rent-regulated tenants with considerable savings or retirement income. However, if itemized deductions are available, it may be more advantageous to use appreciated publicly traded securities to fund charitable contributions than QCDs. The donor thereby would obtain both an income tax exclusion and a tax deduction, rather than merely an income tax exclusion.