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Accelerating Testamentary Gift Can Yield Major Savings

Posted August 2018

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.

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