The Pentera Blog
Bequest Giving Remains Strong, and IRA Giving May Rise: Giving USA™ 2020
An increase in the population of aging Americans is keeping bequest giving strong even though the recent doubling of the estate-tax exemption may eventually hurt charitable bequests, according to Giving USA™ 2020, the annual report on philanthropy. The report also found that tax law changes may result in more IRA funds being used for charitable purposes.
Giving USA™ 2020 analyzes giving by individuals, foundations, corporations, and bequests for the previous year (2019). The study found that bequest giving was flat in 2019 but that over a two-year period bequest giving increased 9.8%, more than any of the other three (individuals, foundations, corporations). Charitable bequests now make up 10% of all charitable giving, up from 7% a decade ago.
"The growth in giving by bequests is likely related to recent changes in demographic factors, such as a larger aging population and the increasing concentration of wealth among older populations," the report states.
Estate-tax exemption increase has not hurt giving so far
Giving USA™ analyzed recent changes in tax laws, including the Tax Cuts and Jobs Act (TCJA) of 2017 that doubled the estate-tax exemption for individuals and couples—eliminating the charitable tax incentive for some estates. Giving USA™ cited a report from the Congressional Research Service predicting that about 14% of bequests are losing the ability to qualify for a charitable deduction—which could lead to a significant reduction in bequest giving.
However, that impact has not been felt yet. Giving USA™ reported IRS statistics showing that in 2018, the first year of the higher estate-tax exemption, there were almost as many estate returns claiming a charitable deduction as the previous year—and the total dollar figure of the charitable deductions was more than a billion dollars higher. That is due to the demographics: more estate-tax returns were filed in 2018 than 2017 because more people died, including wealthy people who made gifts to charity. The IRS figures for 2019 are not yet available.
IRA funds may be used more for charitable purposes
Giving USA™ also reported that tax law changes may result in more IRA funds being given to charity. One change is that the SECURE Act of 2019 eliminated the "stretch IRA" for nonspousal beneficiaries (usually children); those beneficiaries now have to withdraw their inherited IRA funds within ten years rather than having them continue to grow tax-free for many years.
"As a consequence, many individuals may consider instead naming a charity or a charitable remainder trust as the beneficiary to the IRA," Giving USA™ says
In addition, changes wrought by the TCJA may lead to an increase in qualified charitable distributions (QCDs), commonly known as the IRA charitable rollover, according to Giving USA™. Because the TCJA dramatically increased the standard deduction, fewer taxpayers will be able to itemize. But making a QCD to charity reduces the taxpayer's adjusted gross income, which is like receiving a deduction and can also reduce payments and taxes in many other areas such as Medicare, Social Security, and the Affordable Care Act. Giving USA™ encouraged planned giving officers to educate donors more about QCDs.
You can read more about Giving USA™ 2020 and purchase the complete report here.
