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Estate Tax and Charitable Giving

December 20, 2010

The estate tax, which was allowed by Congress to expire in 2010, will return in 2011 -- at a much lower rate than the one in effect at the beginning of the decade. Under the eleventh-hour deal struck by Congress and the White House, the rate in 2011 will be 35 percent -- down from 45 percent in 2009 and the 55 percent rate that prevailed in 2001 -- while the individual exemption for estates subject to the tax will jump to $5 million ($10 million for couples), up from $1 million earlier in the decade.

According to the New York Times, less than one-half of 1 percent of those who die in 2011 will be subject to the tax, in contrast to the 10.5 percent who paid it in 1977. What's more, the deal agreed to by Congress and the White House is only in effect for two years, which means we'll be right back where we were a couple of months ago, debating tax "increases" and "cuts" -- during an election cycle, no less -- before we know it.

So what ;are the implications of the estate tax deal for charitable giving over the next two years? Will the total value of charitable bequests continue to fall, as ;it did in 2009, level off, or start to rise when (and if) the economy recovers? Will family foundation formation slow, or will it continue along the rising trajectory it has followed for the last decade or so? And what does the continued concentration of wealth in fewer and fewer hands portend for the economically battered nonprofit sector?


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