Gifts made directly from IRAs have advantages

Tax laws have been in flux for the last few years. No tax has been a better example of this than the federal estate tax. It has shrunk, disappeared and reappeared, and in some respects reappeared retroactively. Another tax advantage that expired last year and was then renewed was a provision that benefits retired people (in Florida and everywhere else in the country). Under this provision, which is available through the end of 2011, people who are 70 1/2 or older are able to make donations to charity of up to $100,000 directly from their IRAs.

What is the estate planning or tax advantage of making this sort of donation? For one thing, the donation can take the place of an IRA's required minimum distribution. The reason this is helpful to many taxpayers is that the required distributions increase the IRA owner's income. That increase could put them into a higher tax bracket. It could also render them ineligible for certain deductions that depend on an expense exceeding a certain percentage of adjusted gross income, such as is the case with a deduction of medical expenses.

Florida estate planning attorneys noted from a recent news story on the tax provision that two types of taxpayer would particularly benefit from this provision. First, those who have already given to charity up to the limit on deductibility (which is 50 percent of adjusted gross income); second, taxpayers who do not itemize deductions. 

Anyone considering making a charitable gift from an IRA should consult with an expert, just to make sure that this type of gift would be the most beneficial to all concerned, tax-wise.

Source: NYT "The Upside of Gifts Made Directly From I.R.A.'s" Nov. 1, 2011