Joseph, along with advisors, see the provision as most applicable for clients with a preexisting inclination to donate to charity and an IRA account that isn't the core of their retirement nest egg, and those whose estates include sizeable IRA accounts that would be prone to a double income and estate tax hit if passed on to a beneficiary.
Joseph cites the example of a married couple he works with. The husband just turned 70 1/2, and has a total portfolio of several million dollars, of which several hundred thousand is locked up in an IRA account. The couple also are "very generous people" with plans to give some of their assets away. Without the charity rollover provision, the couple would be forced to either take their minimum IRA distribution as regular income, subject to income tax, or donating it to charity and taking the tax deduction.
With the provision, they will be able to devote up to $100,000 per year to the charities of their choice, and at the same time subtract the amount from their taxable income. Meanwhile, they can rely on their equity portfolio for income, at the smaller capital gains tax rate. "This was perfect for them," he says.
It's a good fit for clients who have little in the way of itemized deductions and who are at the age where minimum IRA distributions are required, says Michael Foltz, principal of Balasa Dinverno & Foltz LLC, a private wealth manager in Itasca, Ill. "We have seniors who have paid off mortgages and little in the way of itemized deductions" who could take advantage of the rollover provision, Foltz says.
Herbert Daroff of Baystate Financial Services in Boston has been advising some of his clients to leverage the charity rollover into larger donations through the use of life insurance policies. Although the law varies from state to state, most states allow charities to have an insurable interest in their donors.
Under this strategy, a client would give their $100,000 rollover directly to the charity, which would then use the money to take out a life insurance policy on the donor. The charity would then receive the death benefit as a donation upon the death of the donor, Daroff says.
From the client's standpoint, nothing changes, except "the charity may list you in the $500,000 donor club instead of the $100,000 club," he says. "It's a great way to leverage a $100,000 gift."
