Charities see downside of probable estate tax changes

Published on November 18, 2009
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Alterations to the federal estate tax are coming, but the nature and timing of the changes are still up in the air. Charitable organizations such as the American Veterinary Medical Foundation wait anxiously as a repeal of the tax could remove an important incentive for tax-deductible giving.

House Majority Leader Steny Hoyer announced Oct. 27 that he expects the House of Representatives will revise the estate tax—or inheritance tax—before it expires at the end of 2009.

The estate tax, which applies to the transfer of assets from a deceased person to other people, but not to charitable bequests, will disappear for calendar year 2010 without congressional action. In recent years, Congress has made numerous, temporary changes to the estate tax rate and the exemption amount. Since 2002, the top tax rate has decreased incrementally from 50 percent, and the tax exemption amount has increased incrementally from $1 million. In 2009, the top rate is 45 percent, and the exemption amount is $3.5 million.

On Jan. 1, 2010, a repeal of the tax is scheduled to come into effect for one year only. In 2011, the estate tax would return to pre-2001 levels, with a top tax rate of 55 percent, and the tax exemption amount would drop back down to $1 million.

Some lawmakers are advocating a more generous exemption, lifting the threshold to $5 million for individuals, and lowering the top tax rate to 35 percent.

Considerable interest has been generated in how revisions to the estate tax may affect charitable bequests and the assets of charities. The estate tax encourages charitable giving at death by allowing a deduction for bequests.

In fact, a report from the Tax Policy Center, "Effects of Estate Tax Reform on Charitable Giving," found that a complete repeal of the estate tax would reduce charitable bequests by between 22 percent and 37 percent, or $3.6 billion to $6 billion per year.

The AVMF recently benefited from estate-giving plans by the late Dr. Erwin Small, a prominent figure in Illinois veterinary medicine (see JAVMA, Sept. 1, 2009). He left a generous bequest to the Foundation this year from his estate.

Dr. Erwin Small

"Dr. Small saw the vision of not only how he would like his money used after his death but also how he could relieve tax burden," said Michael Cathey, executive director of the AVMF.

Dr. Small was a professor emeritus at the University of Illinois College of Veterinary Medicine and former associate dean for alumni and public affairs. The beloved and decorated scholar died at the age of 84 on July 1 in Urbana, Ill. His will included a bequest to the Foundation. This was the AVMF's first estate gift since May 2008.

The AVMF hosted four estate-planning sessions at the 2009 AVMA Annual Convention in Seattle. Plans are currently under way for a full rollout of estate-planning opportunities for AVMA members.

For more information on estate planning and charitable giving to the Foundation, contact Michael Cathey at mcatheyatavma [dot] org or (847) 285-6773.