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Estate Tax Affects Charitable Gifts from Donors

This year’s estate tax break has created problems for charities that rely on essential lifetime gifts and donations. According to the New York Times, the executors of some estates are becoming more reluctant to transfer bequests until next year. Other estate planners say litigation or negotiations on planned gifts from those who died and did not update their wills prevent them from handing the gifts over.

The question as to whether Congress will extend the estate tax cuts has complicated and caused costly issues for donors who created charitable remainder trusts through their wills in the event that they pass away. With charitable trusts, the donor typically receives tax-favored income for life, and whatever is left in the trust is given to charity.

Yet some donors are hesitant with continuing these kinds of trusts in fear that the income tax will increase and lower the net cost of charitable gifts. The Internal Revenue Service reported that bequests to charity from those leaving taxable estates of at least $20 million have declined since 2000. Compared to the $14.6 million average for bequests in 2000, those gifts hit their lowest average point in 2009 with $10.7 million.

A common issue NY estate planning lawyers have seen involve donors who create planned gifts and use language that assumes the estate tax would be effective when they die. The language generally indicates that any so-called “residue” in the estate beyond the amount exempt from taxes can go to the designated charity, and thus avoid taxation. But in a time period where there is no estate tax, there is also no residue is left to donate.

So far, probate court judges have advised charities and heirs to negotiate settlements and reach an agreement. If you have or would like to establish a charitable remainder trust or other planned gift, get legal counsel from an experienced NY estate planning lawyer or visit the Related Resources links for general information.

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