A New Kind of CGA Stems from the SECURE Act

This has been a difficult year by any metric. Planned giving may be far from many minds, but it can be particularly valuable for donors motivated to give during this trying time. Indeed, many of our charitable partners report significant upticks in grantmaking by their donors.

The first two months of 2020 were busier than usual for Charitable Solutions. COVID-19 took its toll on our inquiries from March through Memorial Day, and happily we have seen a significant trend of planning activity following the July 15th tax deadline. Throughout 2020, there has been sustained real estate activity (except for high-end commercial property). Similarly, donations of private stock slowed noticeably, likely related to a pause in mergers and acquisitions due to the lockdown, though seem to be trending up again as the summer progresses.

Changing the Rules of the Stretch IRA

At the beginning of the year, we looked at the new 2019 SECURE Act, which changed the rules of the “stretch” IRA, where IRA beneficiaries could extend the IRA payout through the balance of their life. Today that payout must be completed in 10 years. We explored some solutions combining IRA beneficiary designations with life income gifts – specifically CRTs and CGAs, and along with others, developed a testamentary CGA (or T-CGA). Payouts are fixed, and the IRA account holder simply names the charity as a beneficiary on the account. Additionally, a standard CGA agreement is prepared and executed.

Finding a Solution

We were contacted by a financial advisor a few months ago who had a sizeable IRA account and wanted to create a T-CGA. We had our National Gift Annuity Foundation named as the IRA beneficiary and he designated an older family member as the annuitant. Further, the donor named a national poverty-centric charity to receive 100% of the CGA residuum. Although the donor is expected to outlive the annuitant, his aim was to guarantee an income stream if he predeceased the family member, while also meeting his charitable goals.

This T-CGA strategy can be an effective substitute for the now-barred “stretch IRA”. It can be put in place with minimal up-front planning and expense compared to the testamentary remainder trust alternative. Better still, it can exist alongside an existing gift annuity program as another option to improve overall planned giving offerings.