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Three Questions

By Alan K. Davis on June 22, 2015


By Alan K. Davis

Does your Will benefit charity?[1] Is your estate small enough to avoid an estate tax?[2]  Do you trust your family?[3]

If you answer yes to these questions, you may want to revise your Will and estate plan to enhance the income tax benefits of your charitable bequest.  The reason is that assets passing to charity entitle your estate to an estate tax charitable deduction, but NOT an income tax charitable deduction.  This is important because if your estate is not going to pay any estate tax the estate tax charitable deduction is meaningless.

If however, you leave your charitable assets to family (such as a surviving spouse or adult children) with a non-binding request that they make an individual charitable contribution, then of course your estate does not get a charitable deduction for estate tax purposes, but again such a deduction is meaningless if your estate is otherwise not taxable.

When your family member receives the assets and then makes the charitable contribution, they will individually benefit from the charitable income tax deduction generated by the contribution.

In the end, this plan results in more money to charity and/or family and less to the U.S. tax coffers.

The last question – Do you trust your family? – is important because once you leave the money to them in your Will, they may not follow through on the plan.  If they do not, you need to understand that the charities would have no recourse to force the contribution.

The increase in the estate tax exemption to $5,000,000 (indexed for inflation) has produced this and many other opportunities for you to consider. Ask our qualified attorneys or your other advisors if your estate plan is in need of some fine tuning.


[1]Accordingly to IRS statistics 24% of estate tax returns filed in 2003 reported a charitable bequest.  http://www.irs.gov/uac/SOI-Tax-Stats-Estate-Tax-Statistics-Filing-Year-Table-1

[2]Each individual is entitled to a $5,000,000 estate tax exemption which is indexed for inflation. The indexed amount for 1015 is $5,430,000 per decedent.  According to IRS statics less than 1% of decedents in the US will be liable for an estate tax.

[3]Well the IRS has no statistics on this point so you are on your own on this one.