Estate Gifts That Save Taxes

Betty’s husband Harold passed away last summer, and Betty was meeting with her attorney to discuss matters related to his estate and to revise her own estate plan.

“Everything Harold left you is free of estate taxes, thanks to the marital deduction,” her attorney began. “All told, it looks like your own estate will now be worth roughly $1.9 million. In earlier years, I would have been talking to people in your situation about strategies to reduce estate taxes,” the attorney continued, “including the deduction for bequests to charities. Fortunately, estates under $2 million are sheltered from tax, and that amount goes up to $3.5 million in 2009. But I still make it a point to ask all my clients if they want to consider leaving something to worthwhile causes.”

Betty replied that yes, as a matter of fact, she had been thinking about making a bequest to several organizations in her husband’s memory. Did the attorney have any suggestions?

“I encourage people to leave a minimum of 1% of their estates to the organizations they supported during life – more if they wish, depending on their circumstances and charitable motivations,” the attorney answered. “Tax savings may still enable a person to augment what they leave to charity,” he added. “For example, state death tax savings may be available, depending on your place of residence at death. And if you leave an IRA or U.S. savings bonds to charity, you can escape another 25% to 35% in income taxes that your estate or heirs would have had to pay. The point is that with good planning you can help a worthwhile cause significantly, and it may not cost your heirs very much.

“I also suggest that clients consider whether a major gift during life might work better than a bequest,” the attorney continued. “Lifetime gifts can reduce your income taxes significantly and you’ll have the satisfaction of seeing your gift dollars at work while you’re alive. If preserving your investment income is a concern, you might consider establishing a charitable remainder trust or gift annuity that pays you income for life, provides a charitable deduction and eventual support for worthwhile causes from your estate,” the attorney concluded.

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