As estate tax thresholds remain in flux, more families are exploring charitable giving not only as a way to support causes they care about, but also as a strategic move to reduce their tax burden. Testamentary giving, which is charitable donations written into your will or trust, can lower the taxable value of your estate and, in some cases, reduce the inheritance tax rate applied to what you leave behind.
One increasingly popular approach? Leaving at least 10% of your estate to charity. This tactic is especially relevant for those living in high-tax states or whose estates fall just above the federal exemption threshold. And thanks to recent public and private sector research, there’s more clarity than ever on how to execute these gifts in ways that preserve both financial and philanthropic legacies.
A Tax-Smart Legacy: The 10% Rule and Its Impact
Charitable giving in estate planning isn't new, but changes to estate tax thresholds and public policy have made certain structures more attractive. The “10% rule” comes from tax guidance originally tied to the UK’s inheritance tax structure, which incentivized legacy giving by lowering the estate tax rate from 40% to 36% if at least 10% of the net estate was left to charity.
While the U.S. has no federal version of this rule, several U.S. states impose inheritance or estate taxes that can be minimized through charitable bequests. For example, in Pennsylvania, charitable bequests are fully deductible from the estate, reducing the taxable portion and lowering the inheritance tax burden for beneficiaries. Oregon, Massachusetts, and Washington follow similar models.
Even where no state inheritance tax applies, charitable bequests can reduce your federal taxable estate — an especially useful tool as the current federal estate tax exemption ($13.99 million per person in 2025) may drop in 2026 if legislative changes are not made permanent. By earmarking charitable gifts in your will or trust, you lower the taxable value of your estate, sometimes bringing it below the exemption threshold entirely.
As financial planner and attorney Daniel Rice notes in Kiplinger, “Strategic charitable giving is one of the few ways to reduce estate taxes while achieving both financial and philanthropic goals. Giving 10% may be the tipping point between owing tax or not.”
Testamentary Tools That Preserve Purpose and Value
While lifetime giving strategies like donor-advised funds and Qualified Charitable Distributions (QCDs) get much attention, testamentary giving offers advantages that align with estate preservation:
- Charitable Bequests in Wills or Trusts
The most direct method is to name a charitable organization in your will or revocable trust. These bequests can be expressed as a percentage of the estate, a fixed dollar amount, or a specific asset. Because charitable beneficiaries are exempt from federal estate tax, this portion of the estate is exempt from taxation entirely.
- Charitable Remainder Trusts (CRTs)
CRTs allow you to donate assets while retaining income for yourself or beneficiaries for a set term. Upon the term's completion, the remaining assets are donated to charity. If set up as testamentary CRTs, activated upon death, they can provide heirs with an income stream while also generating a charitable deduction that reduces the estate’s taxable value.
- IRA and Retirement Account Beneficiary Designations
Designating a charity as a beneficiary of an IRA or 401(k) is another strategic move. Since retirement accounts are subject to income tax when inherited by individuals, leaving these accounts to a nonprofit, which pays no tax, can maximize the value of the gift while preserving more tax-efficient assets for heirs.
- Gifts of Appreciated Property
Testamentary gifts of stocks, real estate, or other appreciated property allow estates to avoid capital gains tax that would otherwise be due upon sale. The full fair market value of the asset is deductible, potentially offsetting estate tax liability.
As Morgan Lewis notes in their estate planning guidance, “Charitable bequests should be tailored to your goals and coordinated with the rest of your estate plan to avoid unintended tax consequences or conflict among beneficiaries.” In other words, the strategy is most effective when integrated into a comprehensive plan.
Align Giving With Long-Term Goals and Values
Leaving money to charity is inherently personal, but when planned strategically, it can also deliver measurable financial benefits. Here's how to begin:
Review Your Estate’s Size and Tax Exposure
Work with your advisor to determine whether your estate is likely to exceed state or federal exemption levels. Even modest estates can be subject to taxation in some states.
Identify Causes That Matter
Think beyond tax benefits. Identify the charities or causes you want to support, and verify their nonprofit status (501(c)(3)) to ensure your gift qualifies for a deduction.
Update Beneficiary Designations and Legal Documents
A common oversight is failing to align wills, trusts, and retirement account beneficiaries. Be sure these designations are current and coordinated.
Model Scenarios With Your Planning Team
An experienced advisor or CPA can help you model how different giving levels or tools—like CRTs or charitable bequests—impact your estate’s tax exposure and legacy value.
Communicate Your Intentions
Let family members know about your charitable plans. Transparency can reduce the risk of disputes and ensure your values are honored.
Charitable giving shouldn’t just be about saving taxes; it’s about crafting a lasting legacy. When done well, legacy gifts can offer peace of mind, financial efficiency, and lasting social impact.
Conclusion
As more individuals seek ways to minimize estate tax exposure without compromising their values, charitable bequests provide a compelling solution. Whether you give 10% or structure a remainder trust, aligning your estate plan with charitable intent can yield both personal and financial rewards. In a time of shifting tax laws and social priorities, legacy giving may be one of the most strategic (and satisfying) moves you can make.
Sources
Kiplinger
Forbes
Pennsylvania Department of Revenue
Nolo
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