Tax Savings May Still Be Available, Even without Estate Taxes

Tax savings aren’t the reason people support our mission, of course, but they often play a role in the size of contributions people feel they can make. In past years we could point to the estate tax charitable deduction as an added incentive for benefiting our programs through one’s estate plan, and many supporters were able to do more because of “death tax” savings. Are there any tax-saving strategies remaining for donors who won’t be affected by federal estate taxes? Here are some possibilities:

  • Inheritance/state estate tax savings. State death taxes are increasing in many parts of the country, and deductions or exemptions generally are available for charitable bequests. Ask your advisers about the state death tax situation in any state where you own property and whether a charitable bequest would reduce taxes.
  • Reducing income taxes for heirs. Certain kinds of property carry around a “tax curse.” Whoever receives such property from an estate may have to pay income taxes on their inheritance (in addition to any “death taxes” due). Examples of tax-burdened property include U.S. savings bonds, accounts receivable of a business owner, installment sale contracts with payments remaining, deferred compensation and, especially, death benefits from retirement savings plans, including IRAs. The technical name for such assets is “income in respect of a decedent” (IRD). Choosing tax-burdened property to leave to worthwhile organizations means no one has to pay income taxes, and death taxes are avoided as well. It’s even possible to leave property to an organization and reserve lifetime income to a family member from tax-burdened property. Such an arrangement arguably leaves your heirs better off than if you had not provided for a worthwhile cause.

 


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