Legislation
Keeping up with new legislation
can be difficult when planning for your
future and the future of your family. To
make planning easier, Hattie Larlham has
provided you with insight into some of the
relevant legislation or changes to existing
legislation that may affect your financial
planning.
Pension Protection Act of 2006: Updated
IRA Rollover Guidelines
The U.S. Treasury Department
has released Notice 2007-7, which provides
updated guidelines for the Charitable IRA
Rollover provisions. Key points include
the following:
IRA Rollovers
To Pay Pledges: IRA funds may be
used to fulfill a legally-binding charitable
pledge. The transfer from the IRA owner
of IRA funds to the charity is treated as
a receipt by the owner and thus is not a
prohibited transaction.
IRA Owner Delivers
Check: If an IRA custodian issues
a check payable to the charity, but sends
the check to the donor for forwarding to
the charity, this transaction will still
qualify as an IRA rollover if the owner
delivers the check to the charity by December
31 of the applicable year by either physical
delivery or by placing the check in the
U.S. mail by that date.
IRA Custodian
May Rely on IRA Owner Representation:
An IRA custodian may rely upon “reasonable
representations made by the IRA owner”
and is not required to exercise due diligence
to determine that the charity qualifies
for an IRA rollover. Accordingly, the distribution
is not subject to withholding, and the IRA
owner is at risk for a nonqualifying distribution.
IRA Rollover Not
Qualified: If the IRA owner is
less than age 70½ the transfer to
charity does not qualify for the exclusion,
but the owner may qualify for a charitable
deduction if the transfer is to
a qualified charitable organization. However,
due to the AGI limit or other restrictions
(no deduction for nonitemizers), for charitable
gifts of cash to public charities, the gift
may not be fully deductible in the year
of the transfer, although the excess may
be carried forward for up to five years.
Charitable Deduction
and Reporting: The IRA rollover
is not included in taxable income and consequently
there is no income tax deduction. However,
the IRA owner must still comply with substantiation
requirements. The recipient charity should
issue an acknowledgement for the IRA rollover
that is similar to a gift receipt. The acknowledgement
should include the date of the gift, the
name of the IRA custodian, the amount of
the gift, language indicating that the gift
is a qualified charitable distribution and
a statement to the effect that no goods
or services were provided in exchange for
the gift. The acknowledgement should state
that the charitable organization has received
the gift for general purposes or a field
of interest fund, that it qualifies as an
IRC public charity, and that the gift is
not to an IRC Section 509(a)(3) supporting
organization or a donor-advised fund.
Ongoing SEP-IRA
Rollover: If an employer has made
a contribution during the taxable year,
an SEP-IRA or a SIMPLE IRA may not qualify
for an IRA rollover. However, if an employee
has retired and the employer is no longer
making contributions to the SEP-IRA, then
it qualifies.
Husband and Wife
IRA Rollovers: The IRA rollover
is limited to $100,000 per IRA owner each
year. A husband and wife may each transfer
up to $100,000 from his or her own personal
IRA account to a qualified charity, for
a total of $200,000.
The Pension Protection Act of 2006
This new legislation was
passed in August and applies to lifetime
transfers from IRA owners. For individuals
who have reached the age of 70½ by
the date of contribution, an exclusion from
gross income now exists for otherwise taxable
IRA distributions of up to $100,000 per
year from traditional IRAs and Roth IRAs
for “qualified charitable distributions”
made during 2006 and 2007. This rollover
may also be used to meet all or part of
your minimum yearly distribution requirements.
The exclusion does not apply to other types
of retirement plans like 401(k), (403(b),
defined benefit and contribution plans,
profit sharing plans, Keoughs and employer
sponsored SEPs and SIMPLE plans. The law
applies to current outright gifts and does
not allow donations to fund gift annuities
or other life-income plans.
For the following individuals,
the new IRA rollover rules may have special
appeal:
- You do not itemize
deductions
- You already give at
the 50% deduction limit of your adjusted
gross income
- Your income level triggers
the phase-out of your exemptions
- You seek to avoid additional
income that would increase your Social
Security income taxes
- You take mandatory
minimum withdrawals but don’t need
additional income
This legislation does
not change prior law regarding donors between
the ages of 59½ and 70½; funds
may not be distributed directly to charity
but can be withdrawn from a retirement account
and then donated without a 10% penalty for
early withdrawal.
Please note that in order
for you to qualify for charitable IRA rollover
treatment, you must instruct your account
trustee or administrator to transfer the
funds directly to Hattie Larlham. We will
provide a written acknowledgement and receipt
for tax preparation purposes. Because individual
circumstances and state laws differ, please
consult your tax and financial advisors
before finalizing gifts of this nature.
New Ohio Trust Code
The
new Ohio Trust Code, adopted as Ohio Revised
Code, Title 58, became effective on January
1, 2007. This law will require modifications
to many trust documents. It requires trustees
to provide a copy of the trust instrument
to any beneficiary who requests one. Additionally,
the trustee must notify beneficiaries of
the existence of a trust, the acceptance
of a trusteeship and the rights of beneficiaries
to receive reports from the trustee. These
reports must be sent yearly to the current
trust beneficiaries. Title 58 now applies
a two-year statute of limitations on a beneficiary’s
cause of action against a trustee for breach
of trust.
The new code provisions
give professional fiduciaries and corporate
trustees like banks and private trust companies
more flexibility in managing trust accounts.
Clients should consult their legal counsel
in regard to documents like a durable power
of attorney and a declaration of trust and
strategies for probate avoidance.
Under the new Ohio law
(Section 5804.08), pet
trusts have been codified. These trust
funds can provide care for dogs, cats and
other animals if their owner dies or becomes
incapacitated. Only the animals that are
living when the settlor or grantor creates
the trust are covered. The trust is effective
until the death(s) of the animal(s) it names.
The pet trust must be established for the
continued care and maintenance of a specific
animal. In addition, the trust must be funded
to cover the pet care expenses, a trustee
must be designated to administer it and
the settlor must select a caregiver. The
court has the authority to reduce the amount
of caretaking funds to a level it deems
reasonable.
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