WSJ Article

Here is the text from the article referenced in the previous post for those without a WSJ subscription:

GETTING PERSONAL: IRA Charitable Rollover Comes With Risks

DECEMBER 29, 2009, 2:44 P.M. ET
   By Shelly Banjo 

NEW YORK (Dow Jones)–Donors who have tapped their individual retirement accounts for charitable donations under a popular temporary tax break may be in for a surprise come tax season.

In some states, distributions from a charitable IRA rollover may not be tax-free, as many charities have indicated in their promotional materials.

While these distributions escape federal taxes, they may be subject to income tax by states that don’t allow charitable deductions and count IRA distributions as taxable income. Other states are facing delays in incorporating federal tax rules into state law.

In New Jersey, where taxpayers with an income between $500,000 and $1 million face a 10.25% rate, donors may pay more than $10,000 in state taxes for a $100,000 charitable IRA rollover. Donors who don’t factor in extra income from an IRA distribution may mistakenly be bumped into a higher tax bracket.

Pushing for Congress to extend the IRA-giving provision, financial advisers and charities laud the extra tax break for generating an extra $140 million for charity since it was enacted in 2006.

Taxpayers ages 70 1/2 and older are typically required to make annual distributions from their retirement accounts (though distributions for 2009 were suspended). The distributions are included in their federal adjusted gross income and are taxed as such. The charitable IRA rollover lets taxpayers make donations directly to charitable organizations from their IRAs without counting them as income and paying federal taxes on them.

State taxes are a different story, says Eric Abramson, an estate and charitable planning adviser in Paramus, N.J.

“There can be a cost on the state income-tax level, and for a large gift it could mean a substantial income-tax hit. It’s important to bring this to the client’s attention and make sure the cost is quantified and handled appropriately,” he says.

Overlooking state taxes could have wider implications for national charities such as the American Red Cross or United Way, where donations are already suffering from the strained economy.

“The last thing nonprofits need is to face the wrath of an angry donor who wasn’t informed,” says Jonathan Gudema, a planned giving consultant with Changing Our World Inc., a fund-raising and philanthropy consulting firm.

Many organizations, including The College of New Jersey and Overlook Hospital Foundation in Summit, N.J., state clearly in marketing materials that benefits apply only at the federal level.

“We find many of our donors are willing to pay the small price that this might increase their income taxes to reduce the assets held in a retirement plan,” says Kenneth Cole, senior director at Overlook. “In some cases, IRA assets are the only funds they have to make a charitable gift.”

Other charities have steered clear of handing out financial advice altogether.

“Legally and ethically we can’t put ourselves in the position to dispense financial advice,” says Ted Mills, associate director of gift planning at Princeton University. “We tell our donors twice or even three times to review any important decisions with financial advisers.”

(Shelly Banjo is a Practice Management and Getting Personal columnist who writes about wealth management and philanthropy; she covers topics including the business of financial advisers, investment strategies and charitable giving. She can be reached at 212-416-2242 or by email at

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Happy Thanksgiving, New York Style

Happy thanksgiving from Andrew Cuomo, NY Attorney General, that is.

I’ve been home with some sort of flu for two days and I wanted to wish everyone a happy thanksgiving. I couldn’t resist sharing the following ethical quandary facing Cuomo – a story New Yorkers know all too well:

For years, these guys (the UHO tables through NYC) raising money for the “homeless” have been aggressively after everyone walking by. They are collecting for the homeless – themselves, that is. Problem is that they have official sanction as a legitimate charity and they are not quite what we expected.

Basically, a guy figured out a way to professionalize begging in NY. I actually like it better than the non-professional beggars who can sometimes come across as threatening.

In NY, everything like this is about politics. Cuomo might have picked the wrong target this holiday season as it makes him look like a scrooge.

Planned Giving Ethics – Merrill Lynch Case Part 1

As mentioned last week (see ), there was a recent court ruling out of the State of Delaware regarding a really botched charitable remainder trust situation.

Rather than trying to review the entire case in one post, I plan on writing short posts related to the many ethics issues raised in the case. In other words, I think the case itself is great for training purposes – getting accustomed to the nuances that we planned giving officers should be aware of, but the ruling itself should have little or no impact on the field.

If you try reading the case (, you’ll see some nice biographical info on the victims but here is my short version (at least the relevant facts):

Husband and wife (she is 75 and he is 10 years or more older) save over $800,000 in Esso/Exxon stock from his career, their nest egg. At some point, the husband comes to rely on a Merrill Lynch broker and instructs his wife (not typically involved in the family finances) to stick with this guy’s advice when his health starts to deteriorate. Sadly for this family, the wife listened to her husband on this issue and followed the advice of the Merrill broker to put their entire Exxon stock nest egg into a 10% Charitable Remainder Unitrust (CRUT), income for lives of husband and wife, and then to their 3 children, before eventually distributing remainder funds to 5 charities in approximately 50 years. This was finalized in 1996, before the 10% remainder rule came into effect – their deduction on this $840,000 CRUT was less than $10,000.

The first lesson: A Merrill Lynch stock broker, or any other stock broker or insurance salesman or financial planner, is NOT YOUR ESTATE PLANNING ATTORNEY. Even if he has a law degree or even practiced estate planning law. He is a salesman who is selling products or investments. Your attorney is someone who represents only YOUR interests, not the interests of the commissions to be had from selling various products to you.

In other words, beware of Merrill Lynch guy’s estate planning advice.

In truth, this also applies to planned giving officers.

The take way for planned giving officers is to remember and communicate that donors need independent counsel, their own attorneys, to review various plans that have any impact on a donor’s estate. Educate your donors not to rely on you or their Merrill Lynch stock broker for estate planning, especially significant parts of an estate.

To be continued.

Planned Giving Nightmare CRT Case

This new legal ruling is for the die hard planned giving folk out there:

I haven’t spent enough time on it to give readers my summary and my uptake but from my first glance, it’s a real doozy of a fact pattern.

Here is a glimpse and a quote from the introduction of the opinion: A Merrill Lynch broker

“advised an elderly woman to place most of her life savings in a charitable remainder unitrust with a 10 percent annual payout, lifetime gifts to her children as successor-beneficiaries, and the remainder to go to five charities, an event expected to occur almost half a century later — objectives that all now seem to agree and understand were unrealistic and likely unattainable. In the spirit of cross-selling, a trust company sister entity of the brokerage firm was designated trustee. Legal advice was provided by an attorney selected by the brokerage firm; the attorney never even spoke with her client, the trustor.”

I think this case will be a spring board for a series of blog posts on ethics in the planned giving area!