Would Estate Tax Repeal Hurt Charity Fund Raising?

If Congress permanently repeals the estate tax, many charities and foundations worry that they will see a significant, long-term decline in large gifts from wealthy donors.

Diana Aviv, president of Independent Sector in Washington, told the Senate’s Finance Committee at a hearing today that the tax is vital in encouraging the nation’s rich to give money to charity.

But her organization, which represents about 600 large charities and foundations, is also recommending Congress close some loopholes to make sure unscrupulous donors do not use charities as tax shelters.

“The estate tax provides a stream of funding that is essential for the services charitable organizations perform to enrich lives and strengthen communities across the nation and around the world,” Ms. Aviv said.

She added that eliminating the tax would also cost the government about $500-billion over the next 10 years

And that number could grow if the federal government takes steps to make sure some wealthy donors aren’t using charities to shortchange the Internal Revenue Service.

Ms. Aviv pointed to the fact that some donors are using charitable lead trusts to pass on large sums to their heirs under the guise of charity.

The popular planned-giving tool allows donors to put money into a trust that provides annual revenue to a charity. Once the donor dies, his or her heirs inherit the funds that remain in the trust.

Ms. Aviv said the government should consider changing the laws that govern these trusts to curb potential abuse.

What do you think? Is the estate tax necessary for the long-term health of charities and foundations? Should Congress change the way charitable lead trusts operate? Click on the comment link below this post to share your thoughts.