Charitable bequests are transfers to charitable organizations upon the death of the donor. These transfers are typically made by the donor's will, living trust, or through beneficiary designations. Regrettably, these gifts forego an income tax deduction in exchange for the flexibility of allowing the donor to control the property until death. Control of wealth until it is no longer required for the donor (or the donor's surviving spouse) can be an important consideration for some donors.
Properly structured, charitable bequests generally qualify for an unlimited federal estate tax deduction. Coupled with appropriate use of lifetime giving, marital transfers at the first death, and "bypass" or "credit shelter trusts," charitable bequests can result in a "no tax estate" to the benefit of the donors' charitable beneficiaries.
These gifts are appropriate for those individuals who want to support charitable organizations, but who must retain all of their assets to provide for their lifetime financial requirements. When coupled with wealth replacement trusts funded with life insurance, charitable bequests can significantly diminish or eliminate estate tax liabilities while leaving surviving family members the same wealth they would have otherwise enjoyed from one's estate.
Charitable bequests should be only part of a comprehensive estate tax plan. They should be considered after all other charitable, non-charitable, tax, and non-tax planning has been accomplished. We have helped individual donors in structuring their charitable bequests and our charitable organization clients in working with their donors to understand and quantify the benefits of making gifts through their estate planning documents.
©2008 Ronnie C. McClure, PhD, CPA