The new CARES (Coronavirus Aid, Relief, and Economic Security) Act is designed to help you, businesses, and nonprofits facing economic hardship during the coronavirus pandemic.

The Law, Explained by a Charitable Planning Attorney

 

Here are a few key provisions of the CARES Act that may affect you and your charitable goals:

Required Minimum Distributions Suspended

The new law temporarily suspends the requirements for required minimum distributions (RMD) for the 2020 tax year. Despite the RMD suspension, remember that if you are 70½ or older, the tax benefit for making a qualified charitable distribution remains in effect. You can direct up to $100,000 per individual this year to charity and still reduce your taxable IRA balance.

Why a Gift From Your IRA Is Still a Good Idea

  • Your gift will be put to use today, allowing you to see the difference your donation is making.
  • You pay no income taxes on the gift. The transfer generates neither taxable income nor a tax deduction, so you benefit even if you do not itemize your deductions.
  • Since the gift doesn't count as income, it can reduce your annual income level. This may help lower your Medicare premiums and decrease the amount of Social Security that is subject to tax.

New Tax Incentives

The CARES Act expands charitable giving incentives and allows taxpayers who take the standard deduction to make up to $300 in charitable contributions in outright cash to qualified charities this year. It's important to note that contributions of appreciated securities do not meet the above-the-line deduction qualification. Gifts to donor-advised funds, private foundations, or supporting organizations do not qualify for the deduction.

Higher Deduction Limits

For tax year 2020 you can claim an income deduction of up to 100% of your adjusted gross income (AGI) (the prior deduction was 60% of AGI) for cash gifts made to public charities, such as St. Christopher's School Foundation. For example: a donor who earns $200,000 would be in a 32% federal income tax bracket. If he makes cash gifts totaling at least $200,000 to a public charity, and chooses to elect the new AGI rule with no other deductions, he will pay no federal income tax in 2020, thereby saving more than $45,000. Under the current law, contributions that exceed this limit can be carried forward for five years but subject to the percentage limitations in the carryover years. Gifts of stock, or other real property items are still subject to the previous limit of cost basis or 30%.

The deduction for corporate cash gifts has also been raised from 10% to 25% of taxable income for this year.

As always, check with your tax professional for the best strategy for making charitable gifts as it pertains to your financial situation.

A charitable bequest is one or two sentences in your will or living trust that leave to St. Christopher's School Foundation a specific item, an amount of money, a gift contingent upon certain events or a percentage of your estate.

an individual or organization designated to receive benefits or funds under a will or other contract, such as an insurance policy, trust or retirement plan

"I hereby give, devise and bequeath to St. Christopher's School Foundation, Richmond, Virginia, the sum of $______ (or a specific piece of property, or percentage of estate) to be used for unrestricted endowment."

able to be changed or cancelled

A revocable living trust is set up during your lifetime and can be revoked at any time before death. They allow assets held in the trust to pass directly to beneficiaries without probate court proceedings and can also reduce federal estate taxes.

cannot be changed or cancelled

tax on gifts generally paid by the person making the gift rather than the recipient

the original value of an asset, such as stock, before its appreciation or depreciation

the growth in value of an asset like stock or real estate since the original purchase

the price a willing buyer and willing seller can agree on

The person receiving the gift annuity payments.

the part of an estate left after debts, taxes and specific bequests have been paid

a written and properly witnessed legal change to a will

the person named in a will to manage the estate, collect the property, pay any debt, and distribute property according to the will

A donor advised fund is an account that you set up but which is managed by a nonprofit organization. You contribute to the account, which grows tax-free. You can recommend how much (and how often) you want to distribute money from that fund to St. Christopher’s School or other charities. You cannot direct the gifts.

An endowed gift can create a new endowment or add to an existing endowment. The principal of the endowment is invested and a portion of the principal’s earnings are used each year to support our mission.

Tax on the growth in value of an asset—such as real estate or stock—since its original purchase.

Securities, real estate or any other property having a fair market value greater than its original purchase price.

Real estate can be a personal residence, vacation home, timeshare property, farm, commercial property or undeveloped land.

A charitable remainder trust provides you or other named individuals income each year for life or a period not exceeding 20 years from assets you give to the trust you create.

You give assets to a trust that pays our organization set payments for a number of years, which you choose. The longer the length of time, the better the potential tax savings to you. When the term is up, the remaining trust assets go to you, your family or other beneficiaries you select. This is an excellent way to transfer property to family members at a minimal cost.

You fund this type of trust with cash or appreciated assets—and may qualify for a federal income tax charitable deduction when you itemize. You can also make additional gifts; each one also qualifies for a tax deduction. The trust pays you, each year, a variable amount based on a fixed percentage of the fair market value of the trust assets. When the trust terminates, the remaining principal goes to St. Christopher’s School as a lump sum.

You fund this trust with cash or appreciated assets—and may qualify for a federal income tax charitable deduction when you itemize. Each year the trust pays you or another named individual the same dollar amount you choose at the start. When the trust terminates, the remaining principal goes to St. Christopher’s School as a lump sum.

A beneficiary designation clearly identifies how specific assets will be distributed after your death.

A charitable gift annuity involves a simple contract between you and St. Christopher’s School where you agree to make a gift to St. Christopher’s School and we, in return, agree to pay you (and someone else, if you choose) a fixed amount each year for the rest of your life.

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