‘It’s an Easy Sell’

courtesy of Jerry Searfoss

For nearly a year, the Environmental Defense Fund has gone all out alerting donors about the opportunity to make tax-free charitable donations straight from their individual retirement accounts. The group has added a new page to its website, put a tagline on fundraisers’ email signatures, added inserts to gift-acknowledgment packages, posted Facebook ads, and emailed a newsletter to older donors — all touting the benefits of making gifts from their IRAs. The group’s literature calls such gifts “a tax-saving way to help.”

In the first eight months of the current fiscal year, the organization had already seen the number of such gifts grow by more than fourfold over all of last fiscal year, representing a more than doubling of total dollars raised.

“I wish we had started this sooner,” says Cynthia Eubank DiLeo, the fund’s director of planned giving.

Fundraising and tax experts say that organizations like DiLeo’s are ahead of the curve. Even as more and more donors are making gifts from their IRAs, officially called qualified charitable distributions, or QCDs, most nonprofits could be doing much more to solicit and handle them, they say.

Jeff Lydenberg, a planned-giving consultant with PG Calc, laughs that there are something like 9.5 trillion reasons for nonprofits to be more on top of their game. That’s about how much money Americans are estimated to have in IRA accounts.

QCDs, which allow donors who are at least 70.5 years old to give money directly from their IRAs to charities without it counting as taxable income, were first allowed by law in 2006. The provision in the federal tax code was made permanent in 2015, but it wasn’t until last year that the popularity of QCDs appeared to start picking up.

A recent study found that the number of gifts to charities from IRAs grew by an average of nearly 74 percent from 2017 to 2018, with more than nine out of 10 nonprofits in the study reporting an increase. Study participants and other philanthropy watchers attribute the uptick to demographics — the oldest baby boomers had started entering their 70s and were thus newly eligible to make QCDs — and the recent changes in federal tax law, which doubled the standard deduction, resulted in an estimated 21 million fewer taxpayers who itemized. Without access to deductions for itemized donations, more and more folks were noticing the benefits of tax-free QCDs.

“Once people figure it out, it’s an easy sell,” Lydenberg says, “so now is the time for nonprofits to help their donors and everyone to figure it out.”

Jerry Searfoss, 77, from Spokane, Wash., is the perfect example why. Searfoss says he has been giving regularly to nearly 20 charities for decades. One of them is named in his will, and he has discussed estate planning with at least one other. Still, none of them had mentioned to him the opportunity to make current gifts from his IRA.

He doesn’t recall whether he read about QCDs in a newspaper, business journal, or maybe even an AARP newsletter, but, he says, when he came across the information earlier this year, his first reaction was, “Duh!”

Searfoss is a retired accountant, and while he specialized in audits rather than taxes, he was still chagrined that he hadn’t known about QCDs. He says he promptly put the article down and went to the Internal Revenue Service’s website to read more. Then he talked to his financial adviser and was soon filling out paperwork directing his IRA administrator, the Bank of New York, to distribute a total of more than $10,000 to seven nonprofits.

The donated money counted toward his required minimum distribution, the amount IRA holders must withdrawal annually from their accounts starting at a certain age. And since it went directly from the bank to the charities, it did not count as taxable income.

“I’m glad I caught up with this,” says Searfoss. “It makes so much sense.”

Informing Donors

Charities are trying to catch up, too.

JDRF, which supports Type 1 diabetes research, has started asking donors in mailings and surveys whether they would like to know more about QCDs. Seven donors checked a box on a reply card in March asking for information about “making contributions from an IRA (a tax-wise option for donors 70.5+).” JDRF sent them what the organization calls its “Rollover Kit” — three pages of FAQs and a sample of a letter donors can send to their IRA administrators requesting to make a qualified charitable distribution. Two of the donors gave a combined $17,500.

A group called K9s for Warriors, which gives service dogs to veterans, added information about QCDs to its website last spring. It has since received at least a handful of such gifts but is now starting a concerted effort to educate donors and train its own staff so fundraisers “can talk as comfortably about QCDs as they already do about stock and other gift options,” says Meagan Burton, the K9s chief advancement officer. The group is also updating its donor software so it can identify, track, and report QCDs internally.

Fundraisers at Human Rights Watch are formulating new plans to promote QCDs across its efforts to raise planned, major, and annual gifts. Brian Peterson, director of legacy-gift planning, calls QCDs “outright gifts with planned-giving ramifications.” He says that supporters “in the general marketing file,” not just those identified as major donors, may have an interest and capacity to give from their retirement accounts.

“Maybe strategies around QCDs have fallen through the cracks because planned giving and marketing and major giving need to talk to each other to more effectively present these opportunities to donors,” Peterson says.

He and other fundraisers note that while gifts from IRAs are, in effect, the same as an annual gift otherwise made by check or a way to fulfill a cash pledge, they can signal that donors may have retirement assets that could be considered in an overall financial or estate plan.

“These are donors of a certain age who are already thinking about efficiency and tax planning,” says Alan Berkowitz, JDRF’s national director of planned giving. “We have to put them on the radar across the board internally.”

At the Environmental Defense Fund, starting this past January, donors who make a QCD gift of any size are automatically invited to join the Osprey Legacy Society, usually reserved for individuals who have made contributions through a will or a trust. Society members get special recognition, mailings, and invitations to such events as field trips with environmental experts.

“We want to hold these people close and give them a good experience,” the organization’s DiLeo says.

JDRF

Overcoming Trouble Spots

To improve the donor experience making QCD gifts, about 100 nonprofits have recently signed up for a new service offered by FreeWill, a company that provides online tools to help individuals plan their estates and nonprofits attract bequests and other planned gifts.

FreeWill was behind the study that found rates of QCD gifts soaring. Still, says the company’s co-founder Patrick Schmitt, the giving vehicle is “vastly underserved.”

He says it can take more than an hour for would-be donors to wade through internet searches, bank websites, and their own account information just to find the proper forms they need to request the initiation of a QCD gift. Each financial institution that holds IRA funds — called a custodian or administrator — has its own paperwork and processes, he says. Complicating things for donors, he says, is that they have to collect information from nonprofits, such as their tax ID number, to complete the forms, and there’s no standardized way to alert the charity that a gift is coming, who is giving it, and what it’s for.

For their part, plenty of nonprofits report that they regularly get checks from financial institutions without any information about the donor or even, sometimes, whether it is coming from a donor-advised fund or an IRA.

FreeWill’s new service sets up portals on charity websites through which donors can make QCD gifts while the nonprofit is notified of the activity. The new tool directs donors to the necessary forms at 15 of the nation’s largest IRA administrators and autofills some of the donor’s personal information as well as the tax number and address of the charity. It also helps calculate the donor’s required minimum distribution.

When the distribution number pops up, Schmitt explains, the screen also shows what the federal excise tax will be if the account holder doesn’t withdraw at least that much money from the retirement account that year, creating “urgency that does not exist with other gifts.”

Schmitt says by next year, he hopes at least $500 million in QCD gifts will be coming through FreeWill’s customized portals, which, he guesses, is only a fraction of what could be a $5 billion to $10 billion annual market.

Elmer Witter, an 82-year-old from Ocala, Fla., who has made a handful of QCD gifts to JDRF in recent years, says he welcomes anything that might smooth out the donation process. One year his efforts to direct his IRA administrator to transfer money were tripped up because he was informed he needed additional verification of his signature. Another year, he was audited by the IRS because the tax-return software he used did not properly assign his contribution.

Marianne Phelan, 72, from Barrington, Ill., who made gifts from her IRA to 24 nonprofits in each of the past two years, says IRA administrators and charities both need to improve their handling of QCD gifts. She learned, for example, that despite her clear request, the bank had failed to put her member number in the memo portion of a check sent to one of the nonprofits, so the gift was not properly recorded. And she had to make multiple calls to another nonprofit to verify that she had sent a gift from her IRA at all.

“They kept sending appeals as if my donation had gotten lost or misapplied,” Phelan says.

Other hiccups can occur when donors are not up to speed on all the rules.

Joanna Donnelly Dales, vice president for donor relations at Kalamazoo Community Foundation, says she recently had to make a tough phone call to a donor who had had her IRA administrator transfer money to her donor-advised fund. The law does not allow QCDs to fund DAFs. Dales says she offered to return the gift or have it transferred for other use at the foundation, but she hasn’t yet heard back from the donor.

“We are figuring everything out together,” Dales say. “But once the kinks are worked out, it’s a great opportunity for us all.”

Searfoss, the retired accountant, is sold. He plans to tap QCDs for future giving. “We need to keep our pockets open to help people in need,” he says. “My IRA is one of my pockets.”