DATE: February, 2001

DAILY HEADLINE NEWS FEED | ARCHIVES OF PAST MONTHS

Proposed Changes in IRA Distribution Rules

In a surprise announcement in January, the IRS proposed regulations that would change the distribution rules for IRAs. While this summary does not at all cover the 108 pages of changes, Professor Christopher Hoyt (in the following summary) has made aspects of the changes easier to understand. While it may become easier to pass assets in a retirement account on to beneficiaries through your will, passing the assets to charity will avoid the IRD penalty (income in respect of a decedent) in the estate plans of many donors. Past penalties connected to naming a charity to share retirement plan proceeds with other beneficiaries will also be eliminated.

REQUIRED DISTRIBUTIONS OVER YOUR LIFETIME AFTER AGE 70 ½
GENERAL RULES
Unless you are married to someone who is more than ten years younger than you, there is one -- and only one -- table of numbers that tells you the portion of your IRA, 403(b) plan or qualified retirement plan that must be distributed to you each year after you attain the age of 70 ½. The only exception to this table is if (1) you are married to a person who is more than ten years younger than you and (2) she or he is the only beneficiary on the account. In that case the required amounts are even less than the amounts shown in the table. To be exact, the required amounts are based on the actual joint life expectancy of you and your younger spouse.

TWO SIMPLE STEPS Step 1: Find out the value of your investments in your retirement plan account on the last day of the preceding year. For example, on New Years Day you can look
at the closing stock prices for December 31. Step 2: Multiply the value of your investments by the percentage in the table that is next to the age that you will be at the end of this year. This is the minimum amount (RMD) that you must receive this year to avoid a 50% penalty.

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Example: Ann T. Emm had $100,000 in her only IRA at the beginning of the year. She will be age 82 at the end of this year. She must receive at least $6,250 during the year to avoid a 50% penalty (6.25% times $100,000).
THE TABLE: (Law: Prop. Reg. Sec. 1.401(a)(9)-5 Q&A 4(a)(2) (2001))

Age	RMD %	AGE	RMD %	AGE	RMD %
70	3.8168%	71	3.9526%	72	4.0984%
73	4.2553	74	4.4053	75	4.5872
76	4.7847	77	4.9751	78	5.2083
79	5.4348	80	5.6818	81	5.9524
82	6.2500	83	6.5359	84	6.8966
85	7.2464	86	7.6336	87	8.0645
88	8.4746	89	9.0090	90	9.5238
91	10.1010	92	10.6383	93	11.3636
94	12.0482	95	12.8205	96	13.6986
97	14.4928	98	15.3846	99	16.3934
100	17.5439	101	18.8679	102	20.0000
103	21.2766	104	22.7273	105	24.3902

Unlike the old law, there is no longer any different payout based on who you name to be the beneficiary of your account after your death. The minimum lifetime distributions over the rest of your life will be the same whether you name a charity, your father, your mother, your sister, your brother, your child, your grandchild, your dog or your cat. However, distributions after your death can vary depending on who the beneficiary is.

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REQUIRED DISTRIBUTIONS AFTER DEATH FOR PEOPLE WHO DIE AFTER "THE REQUIRED BEGINNING DATE" (after April 1 of the year that follows the year that the person attained age 70 ½).

RULES IF SPOUSE IS NOT A DESIGNATED BENEFICIARY (Spouses generally qualify for the most favorable treatment, such as rollovers)
GENERAL RULE The general rule is that distributions can be made from the decedent's account over the life expectancy of a person who is the same age that the decedent would have been on the last day of the year in which she or he died.
Prop. Reg. Sec. 1.401(a)(9)-5, Q&A 5(a)(2) and 5(c)(3)
EXAMPLE: Sam died at the age of 79. His IRA must be emptied over the next 10 years, since a 79 year old person has a life expectancy of 10 years. The minimum required distribution for each year is 1/10th of the account balance in the first year, 1/9th the second year, 1/8th the third year, and so on.
EXCEPTION IF THERE IS A YOUNGER DESIGNATED BENEFICIARY
Instead of distributing the amounts over the life expectancy of someone who is the decedent's age, amounts can be distributed over the longer life expectancy of the designated beneficiary. The life expectancy of the designated beneficiary is determined by using the beneficiary's age
as of the beneficiary's birthday in the calendar year immediately following the calendar year of the employee's death. Prop. Reg. Sec. 1.401(a)(9)-5, Q&A 5(c)(1).
EXAMPLE: When Sam died at the age of 79 he had named his 22 year old granddaughter as the sole beneficiary of the IRA. Next year his granddaughter was age 23. According to the table, a 23 year old has a life expectancy of 59 years. Thus, instead of distributing the amounts over 10 years the amounts can be distributed over 59 years. The first required
distribution is 1/59th, next year it is 1/58th, etc. etc.

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WHAT IF THERE ARE TWO OR MORE BENEFICIARIES?
Generally the distributions are measured by the beneficiary with the shortest life expectancy. Prop. Reg. Sec. 1.401(a)(9)-5, Q&A 7(a)(1). However, separate distribution computations may be possible with separate accounts. Prop. Reg. Sec. 1.401(a)(9)-8, Q&A 2 and 3.
EXAMPLE: Sam named both his 58 year old nephew and his 22 year granddaughter as equal co-beneficiaries. Distributions to both beneficiaries are based on the older nephew's life expectancy. However, separate distribution computations may be possible with separate accounts for each beneficiary.
WHAT IF ONE BENEFICIARY IS A CHARITY? GENERAL RULE: The minimum distributions revert to the decedent's remaining life expectancy. The other beneficiaries (e.g., children and grandchildren) cannot use their longer life expectancies. The logic is that a charity does not have a life expectancy. Prop. Reg. Sec. 1.401(a)(9)-5, Q&A 7(a)(1)(last sentence).

SOLUTIONS WHEN A CHARITY IS A BENEFICIARY:
#1: A SEPARATE ACCOUNT FOR THE CHARITY:
Prop. Reg. Sec. 1.401(a)(9)-8, Q&A 2 and 3. In that case, the distributions to the other beneficiaries are computed without regard to the account for the charity.
#2: CASH OUT THE CHARITY's INTEREST BEFORE THE END OF THE NEXT YEAR:
If the charity's entire share is distributed before the end of the calendar year that follows the year of death, then the charity is no longer a beneficiary and will not affect the distribution period. This is because the point in time when the final beneficiaries are determined is the last day of the calendar year following the calendar year of the account owner's death.
Prop. Reg. Sec. 1.401(a)(9)-4, Q&A 4(a).

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Split-Dollar Life Insurance Under Scrutiny

The Internal Revenue Service issued their long-awaited position on split-dollar life insurance arrangements in Notice 2001-10, 2001-05 IRB 1 (January 9, 2001).

For most of the charitable world, life insurance is a critical element in a typical donor's charitable and estate plan. The implications of this announcement and its impact on the life insurance industry and charitable giving will not be known for some time, but three things are clear: (1) so-called "Equity Split Dollar" is in jeopardy; (2) "Reverse Split-Dollar" will no longer be an attractive planning tool under these new proposed rules; and (3) the IRS has structured the new rules in such a fashion that it can interpret any split-dollar structure as it deems appropriate, on a case-by-case basis.

The IRS is specifically requesting comment on this Notice, and thus it will be some time before all interested parties within the financial and estate planning sectors have had an opportunity to respond and dialogue.
(Information from the Planned Giving Design Center, San Francisco)

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Supervise Your Children's Use of the Internet

(Ed. Note - this is not news relating to planned giving, but may well be of interest to those who use computers and the Internet.)

Most people would agree that it's a good idea for parents to supervise their children's use of computers and the Internet. But what happens if a mother or father fails to do so?

According to a state judge in Illinois, that parent can face trial in court.

In a controversial decision issued November 28, Judge Ward S. Arnold of McHenry County, Ill., ruled that the father of a high school student accused of digitally grafting the picture of a female classmate's face to a hard-core sexual image displayed on a Web site can be sued for damages.

In the case, a woman referred in court papers as "Jane Doe" charged earlier this year that the young man who created the Web site with the faked picture committed various wrongful acts, including defamation. She also charged that the boy's father, J. Bowen Palenske, of Woodstock, Ill., was guilty of defamation, invasion of privacy and two forms of negligence: negligent supervision of a child and negligent entrustment to a child of a dangerous article. The woman sought damages of more than $50,000.

The father moved to dismiss the claim against him, but after a one-hour oral argument Judge Arnold left the negligence claim in place. He dismissed the privacy and defamation counts.

Lawyers for the father and Jane Doe said that the negligence case against the father will soon enter the pretrial discovery phase. A separate case against the son is also pending.

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The Internet and Doing Good

Recently an event was hosted by the Association for Interactive Media (AIM), which has operated for seven years.

In a poignant moment, Dave Shapiro, a representative from The National Center for Missing and Exploited Children, said "your industry (the Internet) has increased the recovery rate of children from 62 percent to 93 percent." Many people in the audience applauded Shapiro's statement and were visibly moved by his announcement.

The cyber tip line allows both people and ISPs to report inappropriate chat rooms that seek to engage children in conversations, even child pornography. In fact, an ISP that fails to make such disclosures risks a government imposed $50,000 fine. Shockingly, Shapiro said at least 10,000 reports are logged on the site each week.

Despite the problems of the Internet sector, the industry's work in services and philanthropy have been a boon to the marketplace for worthy causes.
(Taken from an article by Christine Gordon, a senior editor with atNewYork.com. )

Digital Tithing - Critics Fear Disengagement

Houses of worship are beginning to embrace e-commerce, with a growing number of churchgoers arranging for their weekly offerings to be deducted automatically from their bank accounts, The New York Times recently reported.

Congregations of many denominations are turning to the same type of electronic fund transfer system that lets individuals pay their bills or invest in mutual funds. Christianity Today magazine estimates that 5 percent of religious congregations in the US are using electronic-giving programs, with many others planning to do so, the Times said.

Digital giving has been instituted mainly by Christian churches, but some synagogues are beginning to use or consider the technique.

Many religious groups say automatic payments help overcome sluggish giving over the holidays when members take vacations. Digital giving also reduces the time to count cash and checks after services.

But some critics worry that electronic donations could dilute the religious significance of giving, reducing it to a routine act.
(Taken from an article in the New York Times)

The preceding is meant as general information and does not represent legal or tax advice. Individual circumstances vary - please consult your legal and tax advisors about your specific situation.

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