Qualified Charitable Distributions (QCDs): Impact of new tax law changes

As of January 1, 2020, the new Setting Every Community Up for Retirement Enhancement (SECURE) Act could alter the way donors use QCDs (also known as charitable IRA rollovers) as part of their charitable giving. Here are some of the changes to be aware of:

  • The SECURE Act raises the age at which individuals must begin taking required minimum distributions (RMDs) from their retirement accounts from age 70 ½ to 72.
  • An individual can still make a Qualified Charitable Distribution from his or her IRA at age 70 ½ – and there may be tax and financial planning benefits in doing so – but some donors may wait until age 72 to begin using QCDs as part of their giving strategy.
  • The Act removes the age limit on contributions to traditional IRAs by working individuals. Starting in 2020, IRA owners may continue to contribute to a traditional IRA past age 70 ½ as long as they have earned income. This change could impact the tax treatment for those donors who are also making QCDs.
  • The Act eliminates inherited “stretch” IRAs for non-spouses, which may create an incentive for donors to establish a testamentary charitable remainder trust as an alternative for providing income to younger heirs.

Donor Advised Funds: Most dynamic and fastest growing vehicle for giving

The National Philanthropic Trust’s 2019 Donor -Advised Fund Report confirms that over the past decade, donor advised funds (DAFs) have experienced tremendous growth. In 2018, contributions to DAFs totaled $37.12 billion and recommended grants to charities reached $23.42 billion – an 86% increase over the past five years. For the second year in a row, the number of new DAF accounts grew by over 50% and new models for DAFs are emerging, such as employer sponsored DAF accounts for workplace giving, some with matching gift opportunities. What does this mean for your institution?

  • It is increasingly important to identify and track donors who are utilizing DAFs as a vehicle for their (non-anonymous) giving.
  • Donors using DAFs may approach their philanthropy differently from those who make gifts directly. For example, they may be less likely to respond to calendar year end appeals and choose to make contributions on their own timetable.
  • For tax purposes, many donors have elected to “pre-fund” their DAFs with the equivalent of multiple years of charitable assets and may be willing to consider a larger gift to support a particular purpose or project at your institution that excites them.
  • Since donors giving through a DAF do not receive a tax acknowledgement for a grant made to your institution, it is essential to have an alternative process for thanking donors for gifts received through their DAFs.
  • Many donors use DAFS as a vehicle for family philanthropy – grant recommendations may involve spouses and cross generational lines.
  • Keep in mind that donors with DAFs have multiple philanthropic priorities! It is important to continue to steward those relationships with care.

Bequests: Nurture and feed an evergreen source of support

Bequests are a critical source of support for every gift planning program, no matter its size, maturity or sophistication. Giving USA recently issued a Special Report – Leaving a Legacy: A New Look at Today’s Planned Giving Donors which confirms that charities have received over $30 billion in bequests in each of the past four consecutive years. Other insights from the Giving USA Special Report include:

  • Charitable bequests are expected to grow as the increasing number of mega-donors increases, as the result of sustained economic growth over the last decade, and due to demographic trends like the rising number of couples without children.
  • Communication related to bequests could begin with individuals in their 30’s and 40’s as many of them are writing their first wills.
  • Donors most likely to make a legacy gift are – not unexpectedly – individuals and couples without children, long term annual fund donors, and longtime volunteers.
  • Bequest donors are more likely to increase – not decrease- their annual giving.
  • The vast majority of donors who document bequests during their lifetime do not alter them – or if they do, it is to increase the amount, so it is imperative to make (and keep) a long-term commitment to stewardship.