Here we are some 20 months after the passage of the Legacy IRA Act, and questions remain. That law updated Section 408(d)(8) of the Internal Revenue Code to allow Qualified Charitable Distributions (QCD) from IRAs to fund charitable gift annuities and charitable remainder trusts. After all this time, there remains some ambiguity.

This question comes up from time to time: can the non-profit organization that is sponsoring charitable gift annuities modify its templates for the gift annuity agreements? Sometimes a person at the sponsoring charity wants to change portions of the agreements from an aesthetic standpoint – they want the language to be more flowing, or they have unique terminology they would like to be incorporated into the agreements. In other situations, there is concern about the technical aspects of the agreements – perhaps a consultant or some other outside advisor thinks the terms should be stated differently. Whatever interest there is – however well-intended – behind the idea of modifying the gift annuity agreement templates, our general recommendation is NO! – don’t do it – don’t even think about doing it! Let’s discuss some of the reasons why.

The index adjustment uses the average Chained Consumer Price Index for All Urban Consumers (C-CPI-U) for each calendar year with 2022 as the base year. The average for a calendar year is taken from 9/1 of the previous year through 8/31 of the current year. Indexing starts with 2024, so the first adjustment will include 9/1/2021 - 8/31/2023. A fair estimate is that there will be an inflation adjustment of 10% to 15% for that period. If that is correct, the limit on outright QCDs would be between $110,000 to $115,000 and the limit on QCDs to a CGA would be between $55,000 to $58,000 (rounded $57,500 to nearest $1,000).

What is the “Legacy IRA”? Under certain circumstances, a donor can make a one-time tax-free Qualified Charitable Distribution (QCD) from their IRA in exchange for a life income gift. This is a once in a lifetime election, subject to the limitations explained below.