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Following the passage of the Tax Cuts and Jobs Act (TCJA) at the end of 2017, philanthropic American taxpayers are facing steeper hills to climb in pursuit of estate-tax savings from their charitable giving.
TCJA doubled the estate- and gift-transfer-tax exemptions to approximately $22 million for a married couple, leaving just a fraction of 1% of taxpayers subject to those taxes.
Some creative donors who would realize no estate-tax savings from charitable gifts at death have found a way to garner tax savings from their generosity. Even better, they are finding that such plans may also actually increase the value of assets passing to other noncharitable beneficiaries.
Example: Dan G, a widower, aged 80, has an estate worth approximately $7 million. For years his will has provided for a $1 million gift to his favorite charity with the remainder going to his children.
Because the amount of the estate-tax exemption has grown substantially since he drafted his will, he decides to remove the charitable provision and make a $1 million gift now.
Dan continues to enjoy significant income and is currently in the 37% federal income-tax bracket. This means the gift will eventually save him $370,000 in income tax because he will have an additional five years to utilize any deduction he cannot use this year.
Had Dan not changed his will and made a gift now, his children would have gotten all of his assets less the $1 million charitable gift. Result of Accelerating Gift: Dan’s children will still get the balance of his assets, plus they will get the $370,000 income-tax savings.
This strategy is not just for wealthy individuals; it works equally as well for any taxpayer whose estate will not be subject to federal estate tax who is planning significant testamentary charitable gifts.Previous articles
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