What An Increased ‘Death’ Tax Exemption Means For Charitable Giving
One provision of the One Big Beautiful Bill Act that was signed into law by President Donald Trump is an increase in the estate and lifetime gift tax exemption to $15 million, indexed for inflation moving forward.
The exemption was increased in 2017 under the first Trump administration but would have sunset at the end of 2025 and reverted back to the previous level of $7 million without new legislation.
The estate tax rates in 2025 range from 18% to 40% for the amount of the estate that exceeds the exemption threshold.
Raising the estate tax exemption has possible implications for family farms and businesses and for charitable giving.
“The scheduled expiration of the higher estate tax exemption threshold is likely to have a notable impact on charitable bequests and donor estate planning,” an article by Philanthropy Roundtable stated last year.
“Currently, the high exemption threshold allows individuals with estates exceeding the limit to donate significant assets without worrying about estate taxes. If the threshold falls, they might be less inclined to make large charitable gifts to maximize the remaining exemption for their heirs,” the article added.
Groups like the Community Foundation of Northern Virginia have been anticipating the possible lowered estate tax exemption, suggesting options for high-worth individuals to transfer portions of their businesses during their lifetimes or creating a donor-advised fund at the foundation in order to avoid estate taxes.
“Gifts to charities are deductible for gift and estate tax purposes and therefore also serve to reduce the value of a taxable estate without eating into the exemption,” the foundation wrote, adding that “increasing a client’s bequests to a donor-advised can help blunt the impact of estate taxes.”
The Heritage Foundation supports repealing all estate taxes, but in lieu of that, supports increasing the estate tax exemption for several reasons.
The estate tax amounts to double or triple layer taxation on money that has all been taxed prior to death through the capital gains taxes, as a business profit, or through the individual income tax, Richard Stern, acting director of the Thomas A. Roe Institute for Economic Policy Studies and director of the Grover M. Hermann Center for the Federal Budget at The Heritage Foundation, told MinistryWatch.
While Stern noted that the impact of raising the estate tax exemption on charitable giving is hard to measure empirically, as often there are many other changes that occur simultaneously, he also expects it will result in increased contributions to philanthropic causes.
For example, in 2017 when the estate tax limit was raised, there were also other tax reductions and economic policy factors that impacted income. Stern said there was a “massive uptick” in charitable giving after the 2017 tax package passed.
However, a study in 2024 by professors at the Indiana University Lilly Family School of Philanthropy found that U.S. charitable giving fell by about $20 billion in 2018, the first year of the 2017 Tax Cuts and Jobs Act’s implementation. They attributed the decline to the bill’s doubling the size of the standard deduction, which caused many filers to switch from itemized deductions — where they would list charitable donations — to the standard deduction.
With an increased estate tax exemption, Stern argues that very wealthy individuals, who might be subject to the estate tax, will face a reduced tax burden and will have more income to donate to charitable causes.
He says the One Big Beautiful Bill Act reduces a variety of tax burdens — including the estate tax — all of which will lead to people having more income, growing economic prosperity and increased donations to charitable organizations.
The Philanthropy Roundtable espoused similar views about raising the estate tax exemption: “Economic dynamism also fuels much of the generous giving that supports our communities, and the charitable causes Americans care about. The tax code should not be used to penalize economic success. Experts, economists, and policymakers are already engaged in discussions about what should happen in 2025.”
Stern also pointed out that very wealthy individuals find ways to escape the estate tax system, so small businesses and family farms tend to be the ones most affected.
While the exemption for $7 million in net worth is certainly nothing to sneeze at, the return to the lower limit would rope in many family farms and family businesses.
In 2024, the U.S. Department of Agriculture analyzed the effect of sunsetting tax provisions on family farms. It concluded that if the estate tax exemption reverted to its pre-2017 levels, nearly twice as many farms in every sales class would have to pay estate taxes.
Those farms often don’t have cash assets to pay the estate tax obligation so must sell off a portion of the farm. The typical buyer of those family farm assets are large corporate farms, thus eliminating competition and more participants in America’s agricultural system.
This article has been republished with permission from Ministry Watch.
Kim Roberts is a freelance writer who holds a Juris Doctorate with honors from Baylor University and an undergraduate degree in government from Angelo State University. She has three young adult children who were home schooled and is happily married to her husband of 28 years.