Mitt Romney is talking about repealing the estate tax, Bloomberg News reports. Estate tax is intrinsically tied to charitable giving.
Charitable bequests help reduce the estate tax burden and with no estate tax, there's less incentive for large estates to make charitable bequests.
Let's break it down further.
Estate tax cuts into the assets of a deceased. While many don't have to pay estate tax, those with total assets over a certain amount ($5.12 million this year, possibly $1 million in 2013) have to pay estate tax.
Or rather, their estate has to pay estate tax when they pass away. This cuts into the amounts left to the heirs.
Now, factor in charitable gifts and the landscape changes a bit.
Charitable gifts can be deducted from the total taxable estate.
A gift made to a 501(c)(3) organization, i.e. one that has been recognized as a federally tax exempt organization, can be deductible.
So, in essence, a donation to one of these organizations can reduce the size of the estate, leaving less for Uncle Sam to cut into.
Or the donations might even lower the overall estate size so that it's within the estate tax exemption amount.
And charitable gifts can be made in many ways-- outright gifts, through various trusts or through donor advised funds.
Moving on, these gifts can provide a huge tax deduction. But if there is no estate tax, then why the need for a deduction?
While we'd like to assume that many charitable gifts are made with altruistic motives and out of sheer philanthropic spirit, that's not always the case.
So would Romney's tax plan reduce charitable giving? If he's elected, then time will tell.
- Search Directory of New York Estate Planning Lawyers (FindLaw)
- How to Leave Money Behind for New York Charities (FindLaw's New York Estate Planning News Blog)
- Make Gifts Now: $5M Gift Tax Exemption to Expire Soon (FindLaw's New York Estate Planning News)