Charitable Deduction

A gift of property or money to a qualified charity is fully deductible against the gift tax (if made by the donor during lifetime) or against the estate tax (if made after death). By themselves, each of these transfers can save up to 40 cents on each dollar contributed (40 percent being the maximum transfer tax rate). But if the charitable gift is made during lifetime, it also carries with it the advantage of being deductible against current income taxes. This could mean additional tax savings, especially considering the 39.6% top tax rate for higher-income individuals.

If you're not inclined to make an outright gift to charity, either during lifetime, or at death, you can save taxes by way of a charitable remainder trust. This is how it works: in your will, you give a life estate in a property worth $10,000,000 to a non-charitable beneficiary (say, a family member), and give the remainder to a qualified charitable organization. If you have followed all the rules, here's what happens: You'll get an estate tax charitable deduction for the value of the remainder interest (computed as the value of the property minus the value of the non-charitable beneficiary's interest). Thus, using basic figures for simplicity's sake, if the life estate interest is worth $6,000,000 to the family member, your estate will get an estate tax deduction for $4,000,000 at your death, even though the charity may not get the property for years in the future.

The charitable remainder trust may become even more attractive in light of the new 3.8% tax on "net investment income" imposed on individuals, estates and trusts, for tax years beginning after December 31, 2012.