Pignatelli Bill Would Allow Donations From IRAs
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The bill, H3444 An Act Authorizing Charitable Life Insurance Policies, is a novel way that allows for donors to see the benefits of their donations during their lifetime.
The legislation would allow for an individual donor to loan a portion of his or her IRA to a nonprofit organization in exchange for a promissory note. The organization then uses a portion of the donation to buy a fully funded life insurance policy on the donor for the exact amount of the note. The money that is left over goes directly to the nonprofit, which can use it for capital projects, increased programming, or for whatever purpose seen fit. Upon the donor's passing, the IRA is repaid the full amount of the original loan by the life insurance policy, thus protecting the donor's beneficiaries.
This is not an irrevocable gift, does not trigger any tax charges or early withdrawal penalties and fully protects the tax base and the donor's assets. Furthermore, it restricts the transaction to only the donor, the charity and the insurance company; there is no third-party lender nor are the policies allowed to be sold or exchanged on any separate market.
"This is a win-win-win because it increases charitable giving to the nonprofit sector, it protects the donor's assets, and doesn't cost the state a dime to implement," said Pignatelli. "I would argue further that it actually increases tax revenues because as soon as the nonprofit receives the money, they will most likely turn right around and use it for a planned capital project and hire more staff. As a result, we would see a significant increase in jobs and the associated taxes and economic activity of this increased spending."
Noting his district relies heavily on cultural institutions to drive the economy, the Lenox Democrat said he was very excited upon learned about this opportunity.
"The nonprofit sector has really struggled the past few years in attracting new donors, and this bill would create a new tool for them to increase fund raising and start to fill some of those gaps in their budgets," he said. "This would benefit the entire state because of the potential increase in charitable giving to museums, theaters, hospitals, colleges and other nonprofits."
Mark Kinney, a certified financial planner from the town of Lee, and who first approached Pignatelli with the idea, said that "while IRA's are retirement assets, many donors wish to preserve the last 10-20 percent of these assets – also known as their 'residuum' - in part for their spouse, children or charity.
If this residuum could be protected, while allowing for an immediate charitable impact, most would be very motivated to assist their local church, hospital, or alma mater, he said, adding it was consistent with one of the purposes behind Charitable Lead Trusts.
"It's been said that in the philanthropic world there is a fine line between philanthropy and family," said Kinney. "Well, this allows you to do both."
The nonprofit sector is a vital economic engine for Massachusetts, accounting for 14 percent of the workforce and employing more than 460,000 individuals. For example a few recent headlines from across the state: $145 million expansion at Clark Institute creates 500 construction jobs; $405 million project at UMass Medical School creates 6,000 construction and 1,600 permanent jobs; BU breaks ground on new student center, creating 300 construction jobs.
By accessing just a portion of the untapped resources in donors IRAs, Pignatelli said the bill would unleash private capital and facilitate a substantial transfer of wealth from Wall Street to Main Street.
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