What would a permanent repeal of the estate tax do to the nonprofit sector? At first blush, it might not seem like estate taxation and philanthropy have much of a link. But there’s a strong connection.
Built in to the federal estate tax is a deduction for charitable bequests. Plus, charitable donations made during a person’s lifetime reduce that person’s taxable estate, also reducing the ultimate estate tax bill.
Study after study has found that, because of the way charitable contributions are treated within the framework of the estate tax, the tax actually increases the rate of charitable giving. The converse also appears to be true; a permanent repeal of the estate tax would reduce the rate of charitable giving.
According to a 2003 Brookings Institution report:
We find that estate tax repeal would reduce charitable bequests by between 22 and 37 percent, or between $3.6 billion and $6 billion per year. Previous studies are consistent with this finding, and also imply that repeal would reduce giving during life by a similar magnitude in dollar terms. To put this in perspective, a reduction in annual charitable donations in life and at death of $10 billion due to estate tax repeal implies that, each year, the nonprofit sector would lose resources equivalent to the total grants currently made by the largest 110 foundations in the United States.
http://www.brookings.edu/articles/2003/0617taxes_bakija.aspx
According to the National Center for Charitable Statistics, there are over 1 million public charities in the United States in additional to the countless private foundations and other charities. Without an estate tax, nonprofits would suffer a catastrophic blow.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
6050 Santo Road, Suite 240
San Diego, CA 92124
(800) 846-1555
www.aaepa.com
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What is the best way to bequeath financial assets to a charity without naming the charities in one’s trust? Currently, I am simply naming the selected charities as 1st beneficiaries of my mutual funds selected for charities. This is done outside of the trust. My concern is how are charities to be notified upon my death without my successor trustee being involved.
Jean, if you want to be certain the charity is aware of your designation, you can write them and let them know. Most larger charities keep a list of those donors who have named the institution in their estate plan. Thanks for reading my blog!
Steve