The Blitz Newsletter - January, 2023

New Legislation Allows Funding an Annuity with Your IRA

Gift planners like me were caught off guard in December by a provision for IRA owners left in the 2022 Omnibus Bill. Effective Jan. 1, 2023, if you own a traditional IRA and are 70 ½ or older, you can take a one-time withdrawal of up to $50,000 to fund a charitable gift annuity (CGA) with your favorite charity (this is also available for funding a charitable remainder trust, but the amount is so small, I doubt you will see these types of transactions) for you or you and your spouse. WOW! That’s a generous gift for IRA owners AND your favorite charity (which I hope is the Masonic Charities). Let’s see how it works.

John is age 78, and his wife, Jill, is age 77. John has an IRA worth $500,000 and has a required minimum distribution (RMD) for 2023 of $10,000. In the past, John could direct that $10,000 to Masonic Charities as a qualified charitable distribution (QCD) and not pay taxes on the distribution. John can still do that in 2023, but now, John has another choice with his IRA. He can now give that $10,000 RMD and up to $40,000 more from his IRA TAX-FREE to fund a CGA. The annuity rate is 5.5% based on his and Jill’s ages (it would be 6.5% if he just did the

annuity for himself). That means they would get $2,750 per year until the death of the surviving spouse, at which time the remaining funds in the annuity would go to the Masonic Charities. The annuity distributions would be fully taxable when received each year, since John never paid taxes on the money used to fund the annuity. Still, this is a sweet deal for John and Jill and the Masonic Charities.

If you are interested in finding out what your personal rate is to fund such an annuity from your IRA, please email me or call my office at 1-800-599-6454 and say, “I want a personal illustration for an annuity funded with my IRA." We will get back to you and go over the particulars for setting up the annuity.

It's the End of the Road

After 22 years of working for the Masonic Charities, I will be retiring on June 30, 2023. This was not an easy decision, since I enjoy meeting many of you at various luncheons, receptions, workshops and in your homes. BUT I am no spring chicken. I turn 67 in February and believe it is time to enjoy some quality time with my family and friends. So, I welcome you to either attend one of my Farewell Tour Luncheons (you might even get a goodbye prize) or Receptions at the Masonic Villages, so we can connect one last time. For those of you who have been holding off talking to me about your estate plan to help the Masonic Charities and your heirs, I would love the opportunity to work with you to establish a meaningful legacy before I retire. Call or email me so we can schedule some time to discuss your needs. While I am looking forward to getting out my fishing rods and dusting off my golf clubs, I sure will miss seeing all your smiling faces.

Cheers!

Information on Tax and Estate Planning from the Masonic Charities of the Grand Lodge of Pennsylvania

Never Do This Charitable Plan

“So, what should I do?” Joe asked. Here were my recommendations:

Find an estate planning attorney open to using institutions, other than a bank, for your trust. Some examples are below.

...

If You Care About Those You Are Supporting

I was with Brother Joe the other day at his home in Milford, where I grew up. Joe was interested in setting up a trust for his lodge and Masonic Villages after he passes. He wanted to put $500,000 from his estate into the trust and was considering a financial institution as the trustee. He wanted to know what I thought about the idea. I said, “Joe, 40 years ago, this might have been a good idea, when we had small banks and the trust officer would meet a lodge officer at the Dimmick Inn for dinner a couple times a year to go over the trust portfolio. The bank charged you minimal fees, and the trust officer even paid for your dinner. How times have changed.”

“What do you mean?” Joe quipped. To which I replied, “Let me give you a little history lesson about the trust business today, Joe. When all those banks merged up into big banks and big trust departments, the local trust officer got replaced with an institutional person that you only knew by the name on the monthly trust statement and never called to explain how your funds were invested unless you called him or her. The fees kept going up. For some small trusts, the annual fees are now larger than the payments to the charities or the lodge. What’s worse, the trust just continues to decline in value, and it’s almost impossible to get the trust terminated. The only real winner in these circumstances are the banks. In my opinion, it’s a cash cow for them.”

Investigate whether the charity you want to support has an endowment fund you can designate for your estate gift rather than using a trust. An endowment fund only uses the income from the invested funds and only charges an investment fee, thereby avoiding the costly trustee fee. This strategy may have drawbacks if you are concerned the charity does not have the expertise to operate its own endowment fund.

Contact a local community foundation that can set up an endowment fund for your needs. The fees should be less than a bank, and the advisors are usually focused on local needs in the community.

Consider an institution such a Vanguard Charitable for an endowment. Their fees tend to be much less than banks (the current fee on a $500,000 endowment is 0.63%, while a large financial institution is around 1.4%).

I then referred Joe to a local attorney in Milford to prepare his estate plan. He opted to have his estate gift go to the endowment fund held by the Masonic Charities for his lodge and the Masonic Villages. He liked the idea that the Masons were managing his gift and that the fees would be greatly reduced in the Grand Lodge Consolidated Fund. A win-win for everyone.

If you are considering making a gift to the Masonic Charities through your estate plan, I encourage you to contact our office for a free consultation on how to best structure your gift or to receive further information on endowments through the Masonic Charities.

Neither Masonic Charities of the Grand Lodge of Pennsylvania, nor Alvin H. Blitz, Esq., provide legal, financial or tax advice. None of the information in The Blitz should be deemed legal, financial or tax advice or acted upon by any person without prior consultation with appropriate professional advisors.

Why is everyone messing with my inherited IRA?

I was visiting with Brother John at his condo in Dallas, TX (not my favorite place during football season since I am an Eagles fan), the other day when he told me about the problem he is having getting the money from the IRA he inherited after his dad passed. He exclaimed, “Al, why is it so difficult to get what is rightfully my money? My dad died almost a year ago, and I am STILL waiting to get the funds into an IRA account with my financial advisor.” I replied, “John, your dad’s financial institution doesn’t want you to get the money right away because every day they can hold onto it is a day they can make money with it. Make sure your financial advisor is on top of the situation. Of course, if you want to keep the IRA with your father’s institution, they will be happy to accommodate you (which is what they really want).”

Another challenge added to the mix this year is the new 10-year rule for inherited IRAs, subject to certain exceptions. Previously, distributions could be taken over the lifetime of the inherited IRA owner. With a traditional IRA, unless you fall under certain exceptions, anyone who is the beneficiary of an IRA from someone who died after Dec. 31, 2019, must receive all the income from the IRA within 10 years after the year of the death of the owner of the IRA. It was thought by most professionals that this meant the owner of an inherited IRA could take the funds out of the IRA at any time, provided it was all out by the end of the 10-year period. That’s not how the IRS sees it.

In early 2022, the IRS issued proposed regulations that essentially require the inherited IRA owner to take out at least the required minimum distribution based on his or her life expectancy during the 10-year period. This is in addition to the 10-year rule for exhausting the account. For those who inherited an IRA in 2021 or 2022 and failed to make a distribution (since no one knew this proposed rule was coming), he or she could be subject to penalties of 50% of the required distribution. Ouch! Recently, the IRS issued Notice 2022-53, stating that it would waive such penalties for required distributions in 2021 and 2022, but you better not miss a distribution starting in 2023.

All of this makes for a very complicated scenario for those inheriting an IRA since 2020. So, I told John it is important he seek professional advice for his inherited IRA, since not making the required distributions during the 10-year period could have dire consequences. I also encouraged him to work with his tax advisor to make sure he times his distributions during the 10-year period in order to minimize his taxes. Finally, I advised him that if he has a Roth IRA, to give that to the heirs since there is no required distribution to worry about except the 10-year rule. I mentioned that if he is charitably inclined, he should name his favorite charity (hopefully us) to receive his traditional IRA, since we don’t pay tax on the distributions. He smiled and said, “Al, thanks for your sage advice, and if I don’t outlive my money, Masonic Charities will get all my traditional IRA assets.”

Now, that’s a happy ending!

Masonic Charities

One Masonic Drive

Elizabethtown, PA 17022

Last Chances to Join Me for Lunch

Please see the dates below where I will be holding upcoming luncheons. To RSVP, call 1-800-599-6454 or email ABlitz@masonicvillages.org.

Naples, Florida Jan. 31

Estero, Florida Feb. 1

Phoenix, Arizona Feb. 22 San Diego, California March 8

Brother Alvin H. Blitz, Esq., Carlisle Lodge No. 260, serves the Masonic Charities of the Grand Lodge of Pennsylvania, which consists of the Masonic Villages, the Masonic Children's Home, the Pennsylvania Masonic Youth Foundation, The Masonic Library and Museum of Pennsylvania and the Grand Lodge of Pennsylvania Charity Foundation.