Planned Giving Legal Tidbits - Pledges and State Tax Implications for IRA Rollover Gifts

I just returned from the annual planned giving quiz given by one of my favorite planned giving lawyer/guru in the field (He doesn't use the internet so I'll leave his name out but it should be pretty easy to figure out).

I learned two ideas - really important ones.

1. New Jersey will tax your New Jersey donors for making IRA charitable rollover gifts! Income tax, that is, on the IRA withdrawal.

That's what I heard. It's really too late to do anything about it if you have been encouraging donors from this state. It has to do with the fact that New Jersey doesn't offer a charitable income tax deduction... New York and Connecticut are fine.

I am wondering if there is a mechanism for New Jersey tax authorities to be notified when someone makes an IRA rollover gift?

My suggestion: cross your fingers regarding the past; confirm for the future (if it gets extended again) and put a caveat on all of your marketing materials that mention this option (especially if you are a NJ charity or have a lot of NJ prospects).

2. My favorite planned gift this year is the irrevocable bequest pledge. Why? Well, let's say that with life income gift business down, I can still look to many millions of closed gifts with these arrangement this past year.

Yes, the person sitting to my right today was from an Ivy League school which has a policy to do no binding pledges - fine if you are in the Ivy League. And, yes, they are tricky - and quite often very problematic when they mature.

Here is what I learned: in New York, all "naming pledges" are legally binding, including named scholarships. That might seem like an obvious point but hearing it from a top attorney puts it on another level for me. You don't need particularly special language - just something in writing where the charity says that it will name something in exchange for this gift.

Of course, the repercussions of this point can be negative. The problem that occurs is when a donor agrees to give the money for some naming opportunity, most often no one has the chutzpah to ask about the source of those funds. Technically, once the pledge is made, the donor (in theory) can't have his or her private foundation pay off that pledge.

The other long standing issue with all pledges, particularly one's that are likely to be fulfilled from someone's estate, is their enforceability. It's a nightmare if you are not actually named in the estate.

A topic for future posts.