Charitable Giving FAQs

Charitable giving offers tax advantages across income, estate, and gift tax structures:

• Estate Tax Deductions: Charitable bequests qualify for an unlimited estate tax deduction. Assets left to a qualified 501(c)(3) organization are deducted directly from the gross estate, reducing both federal estate tax liability and Connecticut estate tax liability.
• Capital Gains Efficiency: Donating appreciated assets, such as real estate, stocks, or business equity, directly to a charity eliminates capital gains tax on the appreciation.
• Income Tax Deductions: Lifetime gifts to qualified charities yield immediate federal and state income tax deductions, subject to annual adjusted gross income (AGI) limits depending on the asset type and receiving organization.

Connecticut imposes a state-level estate tax on estates exceeding the applicable state exemption threshold. Because Connecticut permits an unlimited charitable estate tax deduction, every dollar transferred to a qualified non-profit reduces the total taxable estate dollar-for-dollar.

For larger estates, strategic charitable distributions can bring the total taxable amount below the state threshold or substantially diminish the top marginal estate tax rate applied to the remaining inheritance.

Additionally, Connecticut remains the only state with a state-level gift tax. Lifetime charitable contributions are exempt from Connecticut gift tax, making philanthropy an effective vehicle for lifetime asset removal without incurring state transfer tax penalties.

The right vehicle depends on timing, control, and financial goals.

• Post-mortem direct bequests are made through a will or trust. The charity receives a fixed dollar amount, a specific asset, or a percentage of the estate after death. Direct bequests are simple to draft and cost-effective to set up, but they offer no lifetime income tax benefits.
• Irrevocable charitable trusts are advanced split-interest trusts that balance family security with philanthropic goals during life or after death. These structures provide immediate income tax benefits, capital gains tax efficiency, and flexible payout schedules.

Split-interest trusts split the financial benefit between charitable and non-charitable beneficiaries:

• Charitable Remainder Trust (CRT): Assets are transferred into an irrevocable trust. The trust pays an annual income stream to you or your designated family members for life or a term of years. When the trust terminates, the remaining assets pass to designated charities. CRTs generate an immediate partial income tax deduction, remove assets from the taxable estate, and provide capital gains advantages.
• Charitable Lead Trust (CLT): The inverse of a CRT. The trust pays an annual income stream to a charitable organization for a specified term. At the end of the term, the remaining principal passes to non-charitable heirs (such as children or grandchildren), often with substantially reduced gift or estate tax valuation.

Tax-deferred retirement accounts, such as traditional IRAs and 401(k)s, are considered “tax-encumbered” assets. When individual heirs inherit traditional retirement accounts, distributions are taxed as ordinary income.

Furthermore, non-spouse beneficiaries are generally required to withdraw all funds within ten years under the federal SECURE Act, potentially pushing them into higher tax brackets.

Charities are tax-exempt entities. A tax-exempt organization receives 100% of an inherited IRA balance without paying income tax on the distribution. Leaving retirement assets to charity while leaving non-taxable assets (such as real estate receiving a step-up in basis) to family members optimizes overall wealth transfer.

If you are age 70½ or older, a Qualified Charitable Distribution allows you to transfer up to $111,000 annually directly from a traditional IRA to a qualified 501(c)(3) charity. The $111,000 figure is current for 2026.

• QCDs count toward your Required Minimum Distributions (RMDs) once RMD age is reached.
• The transferred funds are excluded from your adjusted gross income (AGI).
• Keeping AGI lower helps prevent higher Medicare Part B/D premiums and reduces taxation on Social Security benefits.

A donor-advised fund operates as a centralized, personal charitable account. You make an irrevocable, tax-deductible contribution of cash, stock, or real estate to a sponsoring organization.

You take an immediate income tax deduction in the year of the contribution, while retaining the right to recommend grant distributions to specific charities over time. DAFs can also be named as the beneficiary of a trust, will, or IRA, allowing successor advisors (such as adult children) to continue family philanthropic giving across generations.

Our firm can help if you are looking for legal guidance as you contemplate your legacy.