The federal estate tax exclusion rose to $15 million per person for 2026, and it adjusts for inflation beginning in 2027. That figure determines which donors face estate tax and how a charitable bequest changes the outcome for their heirs. Planned giving leaders who understand the mechanics of this exclusion can hold more productive conversations with donors and their advisors and prepare their organizations to receive larger gifts.

In this refresher, we’ll cover the 2026 exclusion and rate, the code sections that govern charitable deductions, the conditions a bequest must meet, the operational groundwork behind planned gift fundraising, and the treatment of gifts to foreign charities.

How the 2026 Estate Tax Exclusion Affects Bequest Cost

Federal estate tax affects a small share of estates, so its influence on giving is concentrated among donors with the largest holdings. For those donors, the 2026 figures set the terms of the conversation.

For decedents who pass away in 2026, the basic exclusion amount is $15 million per person. Public Law 119-21, Sec. 70106. Extension and Enhancement of Increased Estate and Gift Tax Exemption Amounts, signed on July 4, 2025, set that amount. Under the unified credit rules, the exclusion adjusts for inflation after 2026, and a surviving spouse can add a deceased spouse’s unused exclusion when the executor makes a portability election. With that election, a married couple can shelter up to $30 million.

Estate value above the exclusion is taxed at a top rate of 40 percent under the estate tax rate schedule. That rate sets the net cost of a charitable bequest. A bequest reduces the taxable estate dollar for dollar, so each dollar given from the taxable portion of an estate saves 40 cents of tax. A $1 million bequest from that portion costs heirs $600,000 in after-tax value.

The saving applies only to the part of the estate above the exclusion. Consider an estate that exceeds the exclusion by $1 million. A $2 million bequest eliminates the $400,000 of tax, but the second million reduces the inheritance without producing a further saving. Some states also levy their own estate or inheritance taxes at lower thresholds, which brings more donors into this conversation.

How This Works

Picture a single donor who passed away in 2026 with a $16 million estate. The first $15 million is excluded from tax, so only the last $1 million is taxable. Here’s what happens:

  • No bequest: The $1 million above the exclusion is taxed at 40 percent, which is $400,000. Heirs receive $15.6 million.
  • $1 million bequest: The gift removes the entire taxable $1 million, so the tax drops to zero. The charity receives $1 million and heirs receive $15 million. The gift cost the heirs only $600,000 because $400,000 of the $1 million would have gone to taxes anyway.
  • $2 million bequest: The tax is still zero, but the extra $1 million came out of the untaxed portion. Heirs receive $14 million, so the full second million comes out of their inheritance with no added tax savings.

In short, the first dollars given above the exclusion are discounted by 40 percent. Dollars given from below the exclusion are not discounted at all.

What This Means for Planned Giving Officers

You do not need to calculate estate tax. Officers do benefit from noting which prospects may hold estates near $15 million, or $30 million for couples, because those donors typically work with estate attorneys. Recording that context in your CRM early and inviting advisors into the discussion gives your organization a place in the plan before the documents are drafted.

A few practical takeaways:

  • Know where the sweet spot is. A bequest is most tax-efficient for donors whose estates sit at or just above the exclusion. A modest gift can erase most or all of the taxable portion, so the donor’s real cost is well below the face value of the gift.
  • Do not lead with tax savings for everyone. For the many donors whose estates fall well under the exclusion, a bequest carries no federal estate tax benefit. With these prospects, the conversation is about values and legacy, not tax.
  • Frame the gift as a percentage or residual share. Because the tax picture can shift with asset values and future law, a percentage of the estate often holds up better than a fixed dollar amount.
  • Check state thresholds. Prospects in states with their own estate or inheritance taxes may reach a taxable estate at much lower values, which widens the group worth approaching.

At this point, you can bring in an advisor. Invite the donor’s attorney or financial advisor to model the numbers. Your role is to make the gift easy to include, not to give tax advice.

Which Code Sections Govern Charitable Bequests and Lifetime Gifts

Donors have three routes to a charitable deduction, each corresponding to a different section of the Internal Revenue Code. The differences explain why a bequest can carry a larger commitment than a lifetime gift.

Code Section Overview Applies To Key Feature
IRC Section 2055 Allows the estate tax deduction for transfers at death to qualifying charitable organizations Bequests and other transfers at death (estate tax) No percentage cap; reduces the taxable estate
IRC Section 170 Allows the income tax deduction for contributions to qualifying organizations, within statutory limits Lifetime gifts (income tax) Capped at a percentage of adjusted gross income
IRC Section 2522 Allows the gift tax deduction for gifts to qualifying charitable organizations Lifetime gifts (gift tax) Deducted when computing taxable gifts

The estate tax charitable deduction under Section 2055 covers bequests, legacies, devises, and other transfers at death to qualifying organizations. Treasury regulations confirm the deduction has no percentage limits, unlike the income tax deduction. A bequest of cash or property to a qualifying charity removes that amount from the taxable estate in full.

Lifetime gifts face AGI percentage limits under Section 170. Depending on the type of property and the recipient, the cap is 20, 30, 50, or 60 percent of adjusted gross income, and the 60 percent cap applies to cash gifts to public charities. Beginning in 2026, itemizers also deduct only the portion of total contributions that exceeds 0.5 percent of adjusted gross income.

Section 2522 provides the gift tax deduction for lifetime transfers. It allows the amount of qualifying charitable gifts to be deducted when computing taxable gifts.

For a donor with a concentrated estate, the pattern is straightforward. Lifetime gifts provide current impact within the income tax limits, while a bequest can carry the largest commitment without a cap. Encourage donors to ask their advisors to model both paths, and share your funding priorities so the plan reflects where the gift will do the most good.

Rules a Bequest Must Meet to Qualify for the Deduction

Naming a charity in a will does not settle deductibility. The way the transfer is written determines whether the estate can claim it.

Transfers Without Uncertain Conditions

Treasury regulations allow a deduction for a conditional bequest only when the possibility that the gift fails is negligible. In practice, this favors plain language. The instrument names the organization, states the amount or share, and avoids tying the gift to events outside the charity’s control.

Gifts of Partial Interests

When a donor gives a charity only part of an interest in property, Section 2055 generally requires a recognized structure. Charitable remainder trusts and charitable lead trusts are the most common, and a few statutory exceptions exist. These vehicles carry technical requirements, so a donor’s attorney should draft them.

Provide donors with sample bequest language that uses your organization’s full legal name and tax identification number, and invite their attorneys to adapt it. Clear identification helps the executor document the deduction without delay.

Building the Data and Policy Infrastructure for Bequest Programs

Planned gifts often arrive years after the first conversation, so the records and policies behind them must stay reliable over long periods. Two capabilities matter most: identifying the right prospects and accepting the gifts they intend to make.

Bequest prospects often sit inside your existing database. Long-tenured donors, board members, and volunteers are natural starting points, but they are easy to overlook when records contain duplicates and outdated contact details. Four practices bring them into view:

  • Audit and clean donor data regularly: A routine of donor data cleanup, built on an audit, a central data store, and shared entry standards, keeps each supporter’s history accurate and in one place.
  • Enrich records with external data: Data enrichment fills gaps in the records. A data append compares an organization’s records against a larger outside source to add missing contact, demographic, and employment details. Employment data can help estimate giving capacity, although it does not reveal salary.
  • Conduct targeted prospect research: Prospect research adds giving history and business connections, and screening prospective donors in this way helps a team prioritize its outreach.
  • Unify records across platforms: Donor record matching ties these sources together. Consistent management of supporter information across the CRM, event platform, and giving software lets staff follow a relationship that may span decades and prevents a gift logged under a duplicate profile from obscuring a donor’s full history.

The same records support multi-year fundraising campaigns. Many campaigns include an endowment component, which gives planned gift prospects a natural way to participate.

Accepting Retirement Assets and Non-Cash Property

Retirement accounts and similar assets often qualify as income in respect of a decedent, or IRD. Heirs generally report IRD as income when they receive it, while a charity does not owe income tax on the same amount. When a donor names a charity as beneficiary of IRD assets, the estate can still claim the Section 2055 deduction, and the family avoids the income tax it would otherwise bear. That pairing makes IRD assets a natural fit for charitable planning.

Liquid assets such as cash, securities, and life insurance proceeds convert readily to program funding. Illiquid assets, including real estate, tangible personal property, and closely held business interests, call for review of holding costs, liquidation timing, and legal or environmental considerations before acceptance.

A written policy assigns that review. Well-drafted non-cash gift guidelines define which gifts the organization accepts, who evaluates complex offers, and how assets are liquidated and reported. When a gift’s administration costs would outweigh its value, the policy also gives staff a clear basis to suggest an alternative.

Finance and development teams can agree on liquidation procedures before the first large bequest arrives. Executors work on their own timelines, and an approved process lets the organization respond promptly and consistently.

Estate Tax Treatment of Bequests to Foreign Charities

Organizations with international programs and donors with global ties often ask whether estate tax rules apply the same way for charities outside the United States. For the estate tax, they largely do.

For estates of U.S. citizens and residents, the same Treasury regulation states that the deduction is not limited to domestic organizations. The recipient must still meet the exclusive-purpose tests that apply at home. A corporation must be organized and operated exclusively for qualifying purposes, and funds given to a trustee must be used exclusively for those purposes. A will or trust that states this limitation plainly makes the executor’s documentation easier.

The income tax picture differs. Donors generally cannot deduct lifetime gifts to a foreign charity, because Section 170 requires the recipient to be created or organized in the United States. Therefore, the estate tax deduction gives donors with international interests an option that lifetime giving does not. Split-interest structures have their own limits. Because the statutory definition of a charitable remainder annuity trust requires the remainder beneficiary to be a domestic organization under Section 170, a foreign corporation cannot serve in that role.

Before a donor finalizes a gift involving an organization abroad, ask counsel to confirm the recipient’s qualification and record that confirmation in the donor file. The record supports the executor later and keeps your own files complete.

Next Steps for Planned Giving Teams

Begin with your records. Identify supporters with long giving histories, confirm their contact and employment details, and flag those whose estates may approach the exclusion. Next, review your acceptance policy against the asset types described above and designate a contact for donors’ advisors. That contact can explain your organization’s legal name, tax identification number, and bequest language without offering tax advice.

Donors should confirm specifics with qualified tax counsel. Your role is to make the charitable option clear, documented, and easy to act on. Because the exclusion now adjusts each year, an annual review of the thresholds keeps your prospect flags current and your conversations accurate.