Charitable Planning for Tax Sheltered Estates

With estates up to $11.18 million sheltered from tax in 2018, will any charitable strategies be needed by the vast majority of donors?  Are lifetime contributions now even more attractive than testamentary transfers?  What other rewards may be available for philanthropic individuals who don’t have to worry about federal estate taxes?

Inheritance/state estate tax savings — A total of 16 states plus the District of Columbia impose estate or inheritance taxes.  Even clients who don’t reside in one of those jurisdictions might be subject to tax if they own real estate or tangible personal property there.  All states with estate or inheritance taxes offer charitable deductions or exemptions to encourage charitable bequests.

Tax-burdened assets — Income in respect of a decedent (IRD) will continue to be a problem for beneficiaries of estates, even if federal or state estate taxes are not a concern.  Donors should be encouraged to leave retirement accounts, U.S. savings bonds and other items of IRD outright to charity.  Charitable remainder trusts funded with IRAs or savings bonds could provide lifetime income to family beneficiaries without immediate erosion from taxes.

Nontax considerations — Donors wishing to benefit both charities and family members may be attracted to charitable remainder trusts or charitable gift annuities because of the money management or trusteeship services these vehicles provide to beneficiaries.  If gift arrangements are established during life, they also avoid probate.

Lifetime gift arrangements — Under federal estate tax, married persons generally receive no estate tax advantage from charitable bequests made when the first spouse dies, even in estates subject to tax, because marital transfers are fully sheltered by the estate tax marital deduction.  Couples may be better advised to make lifetime contributions where feasible - including charitable remainder trusts and charitable gift annuities - and enjoy income tax savings, capital gains tax avoidance and current recognition from charities.


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