Your Charity in the Estate Plan

The largest tax fact about charity is not on Schedule A at all: the charitable estate-tax deduction under IRC §2055, “Transfers for public, charitable, and religious uses” is unlimited. Every dollar bequeathed to a qualifying charity — including your own foundation — leaves the taxable estate entirely, which is why the split-interest trusts of chapter “Estate planning” exist and why an estate hovering just above the exemption can often be brought under it with the giving you intended to do anyway. Direct the bequest in the will or trust, and prefer retirement accounts as the funding source: a charity pays no income tax on a decedent’s untaxed retirement money, while your heirs would (section “Testamentary Charitable Remainder Unitrust (T-CRUT)”).

Two cautions for the charity you control. Mission-related investments are permitted, but income from an active business or leveraged assets is unrelated business taxable income, taxed even inside an exempt entity — read the fund documents before the foundation invests. And every transaction between you and the organization runs through the self-dealing rules above (section “Self-Dealing: the Rule That Catches Founders”); the vehicle exists to fund the mission, not to bank the family. IRS Pub. 526 and the Form 990, “Return of Organization Exempt from Income Tax” filing requirements govern the compliance.