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Estate Tax Repeal Hurts Nonprofit Funding

By Tanya Roth, Esq. on March 16, 2010 12:45 PM

If you're running a tax exempt nonprofit organization or a charity, you need to understand some of the implications of the estate tax repeal because of its potential effects on the funding of nonprofits. 

Under a logical thought process, one would assume that less taxes would mean more money and therefore, more money for people to give to charity. Right?

If only it were so. Unfortunately, tax policy is never the product (or effect) of such linear logic.   

And so it would seem to tax policy analysts that the lapse of estate tax would sound the alarm in the philanthropic sector. After all, not everyone thinks like Bill Gates, donating their estates to charity when they die. 

Data released by the Internal Revenue Service sustains the charities' fears -- that charitable bequests drop proportionally as the estate tax drops.   

So then, what should charities expect in a world with no estate tax?  Indeed, charities seem to be navigating those waters this very year, seeing as how Congress essentially dropped the ball on the estate tax issue.

You see, Congress let estate tax lapse in 2010. And it wasn't a minor oversight- they knew it was coming for eight years, since 2001, to be precise. In 2001, the Bush Administration enacted the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). The 2001 legislation allowed for gradual decrease of estate tax over the course of the eight-year period.  Then, at the end of 2009, the estate tax was set to sunset for 2010, only to return to 2001 levels again in 2011, unless Congress acted otherwise. 

But Congress hasn't acted otherwise. Although President Barack Obama has addressed the issue, no tangible answers have been given yet. Now, estate planners, wealthy individuals and charities are all left to swim in the waters of uncertainty, patiently awaiting some resolution from the higher authorities while drafting cautionary and conditional terminology into their estate planning documents.

And unfortunately for the charitable sector, some of those conditional terms involve reducing charitable bequests if estate tax is not re-instated in 2010, a prospect which could reduce already constrained charitable contributions.

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