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Updates

Mon, Sep 23, 2024

Marla Novo

Marla Novo - Deputy Director

Estate Tax Changes on the Horizon: Why Charitable Giving is Key

First friday lost childhoods exhibition opening 35860743056 o jpg

by Roxanne Olson, MAH Trustee and the founding attorney at Fine Point Law, Inc.

As we approach the end of 2024, significant changes are coming to the federal estate tax laws that could impact your family. The current estate tax exemption, which allows individuals to pass on up to $13.61 million tax-free, is set to be cut in half unless Congress takes action. This reduction means more estates could be subject to federal estate taxes in the near future, making now a crucial time to consider estate planning strategies.

One powerful tool to reduce the impact of estate taxes is charitable giving. For those with estates exceeding the exemption threshold, leaving a portion of your estate to a qualified charity can help reduce the taxable estate, resulting in significant tax savings.

By making charitable bequests or establishing charitable trusts, you can direct assets toward causes you care about, all while lowering your estate’s exposure to tax. Charitable trusts, such as Charitable Remainder Trusts (CRTs) or Charitable Lead Trusts (CLTs), offer flexibility in how and when donations are made, allowing you to manage the timing of your gifts while still benefiting your estate’s bottom line.

- Charitable Remainder Trust (CRT): This allows you to transfer assets into a trust and receive an income stream for life (or a set number of years), after which the remaining assets go to the designated charity. You receive an immediate charitable deduction and reduce the size of your taxable estate.

- Charitable Lead Trust (CLT): With this trust, a charity receives income for a specific time period, and after that, the remaining assets go to your beneficiaries. This strategy reduces both your estate taxes and can provide a current charitable deduction.

Charitable giving can also provide immediate benefits in the form of income tax deductions. For those looking to reduce their taxable income now, gifts of appreciated stock, real estate, or other highly appreciated assets to charity allow you to bypass capital gains tax while still receiving a deduction for the full value of the gift. This can be especially beneficial in high-income years, offering a direct reduction of your taxable income.

Another option is to "bunch" charitable donations, allowing you to maximize the tax benefits in years when deductions would be more impactful. For example, contributing a significant amount to a Donor-Advised Fund (DAF) allows you to take an immediate income tax deduction, while having the flexibility to distribute the funds to charities over time.

Act Now to Make the Most of Estate Tax and Income Tax Opportunities

With the estate tax exemption set to decrease after 2025, now is the time to review your estate plan and consider the role charitable giving could play in reducing both estate and income taxes. By aligning your financial goals with philanthropic endeavors, you can create a lasting legacy for the causes you care about while ensuring that more of your assets go to your family and the organizations that matter most to you—rather than to taxes.


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