Charitable Bequests vs. Lifetime Giving: Tax Implications

How to decide whether charitable intent belongs in the estate plan, the annual giving plan, or both

June 26, 2026

Charitable planning usually begins with a generous question: "How can we help?" The tax question comes second, but it still matters. The same $100,000 charitable intent can produce very different results depending on whether it is given during life, left at death, funded with cash, funded with appreciated securities, or directed from a retirement account.

The basic distinction is simple. A charitable bequest is a gift made at death through a will, revocable trust, beneficiary designation, or other estate-planning document. Lifetime giving is a gift made while the donor is alive, usually through cash, appreciated securities, donor-advised funds, charitable trusts, or direct transfers to an operating charity. Both can be good planning. They just solve different problems.

My view is that families should not frame this as "bequest or lifetime giving" in the abstract. The better question is: which dollars should go to charity, when should they move, and what tax problem are we trying to solve? Figure 1 summarizes the major 2026 tax limits that shape that decision.

This piece is educational. It is not legal, tax, or accounting advice for a specific estate plan or tax return. Charitable documents, beneficiary designations, and tax reporting should be coordinated with your attorney, CPA, and Perissos before anything is implemented.

Figure 1: Charitable planning touches different parts of the tax code. The estate-tax exemption is measured in millions, while annual gift exclusions and the new non-itemizer charitable deduction are much smaller annual reference points.

A charitable bequest is a promise in the estate plan. The donor keeps ownership and control during life, and the charity receives the asset after death. That control is the main non-tax benefit. The donor can change the plan, spend the money if life changes, and retain investment flexibility.

For federal estate-tax purposes, the value of qualifying charitable transfers at death is generally deductible from the taxable estate under Internal Revenue Code section 2055.¹ In plain English, assets left to qualified charities are usually removed from the estate-tax base. That can be powerful for families whose estates are large enough to face estate tax.

For 2026, the federal estate-tax basic exclusion amount is $15 million per individual.² That means a married couple with proper planning may have a very large combined federal shelter before estate tax becomes relevant, although portability, prior taxable gifts, state estate-tax rules, asset growth, and document design all matter. Families with property or residency ties to multiple states should not assume the state answer is the same as the federal answer.

The bequest also avoids one common problem with lifetime charitable deductions: adjusted gross income limits. A lifetime income-tax deduction can be limited by a percentage of AGI. A bequest is not an itemized deduction on the donor's final personal income-tax return. It is an estate-tax deduction. Different tax. Different return. Different purpose.

There is a second basis point that often gets missed. Many assets included in a taxable estate receive a basis adjustment at death under section 1014.³ If appreciated stock is left to family, that step-up can be valuable. If the same appreciated stock is left to charity, the basis step-up is usually less relevant because the charity is generally tax-exempt. That is why asset selection matters. It may be better for charity to receive retirement accounts or low-basis assets in some cases, while heirs receive assets with better income-tax treatment.

The takeaway: a charitable bequest is usually best when the donor wants control during life, the estate may face estate tax, the charitable intent is long-term, or the donor wants a clean legacy instruction without creating a current-year income-tax transaction.

Lifetime giving is different because the tax benefit, if one exists, happens now. The donor parts with the asset during life and may receive an income-tax charitable deduction, subject to the usual rules. That current deduction can be useful in high-income years, business-sale years, Roth-conversion years, or other periods when taxable income is temporarily elevated.

The income-tax rules depend on what is given and where it goes. Under the section 170 framework, cash gifts to many public charities may be deductible up to 60% of adjusted gross income, while gifts of long-term appreciated capital-gain property to public charities are generally limited to 30% of AGI. Gifts to certain private foundations and gifts of certain property can be subject to lower limits, often 30% or 20% depending on the facts.⁴ Excess charitable deductions are generally carried forward for up to five years.⁵ Figure 2 shows the main individual AGI limits in one place.

Beginning in 2026, individual charitable deductions also have new wrinkles. Non-itemizers may claim a limited deduction for certain cash gifts, capped at $1,000 for single filers and $2,000 for married couples filing jointly. Itemizers face a new 0.5% of AGI floor before charitable deductions begin to count.⁶ Those rules do not make charitable planning worse. They do mean the timing, bunching, and structure of gifts matter more than they did when the deduction was easier to model.

Lifetime gifts can also remove future appreciation from the donor's estate. For outright gifts to individuals, the 2026 annual gift-tax exclusion is $19,000 per recipient, and larger taxable gifts generally use the donor's lifetime estate and gift-tax exemption.² Charitable gifts are different because qualifying lifetime transfers to charity can be deductible for gift-tax purposes under section 2522.⁷ Still, the planning point is similar: moving assets during life can move future growth out of the donor's balance sheet.

The biggest non-tax advantage of lifetime giving is that the donor gets to see the impact. That matters. Some families want to fund a church campaign, help a school build a program, support a ministry, or involve children and grandchildren in charitable decisions while everyone is still at the table. A bequest can be efficient, but it is quiet. Lifetime giving can be formative.

The tradeoff is control. Once the gift is complete, the donor generally cannot take it back. That is not a small detail. I think of it like deciding whether to mail the check today or leave instructions in a sealed envelope. The tax code may reward the mailed check in the right year, but the envelope keeps optionality.

The most important distinction is where the tax benefit shows up. A charitable bequest reduces the taxable estate. A lifetime charitable gift may reduce income tax. Those are not interchangeable.

For a family far below the estate-tax threshold, a charitable bequest may be emotionally meaningful but produce little or no federal estate-tax savings. If the estate is not taxable, removing assets from the taxable estate does not reduce a tax that was never going to be paid. That does not make the bequest a bad idea. It simply means the reason for the bequest is legacy, control, and simplicity, not federal estate-tax reduction.

For a high-income taxpayer who itemizes, lifetime giving can produce a current income-tax deduction, but the AGI limits matter. A $1 million cash gift in a $500,000 AGI year will not necessarily be fully deductible in that year. Carryforwards can help, but carryforwards are not the same as immediate tax savings. They require future income, future itemizing, and future tax rules that still make the deduction useful.

For appreciated assets, lifetime giving can be especially efficient. If a donor contributes long-term appreciated securities directly to a qualified public charity, the donor may avoid recognizing the built-in capital gain and may receive a fair-market-value charitable deduction, subject to the applicable AGI limits.⁴ That is a different result than selling the stock, paying capital-gains tax, and giving after-tax cash.

Retirement accounts deserve separate attention. Traditional IRA and pre-tax retirement account dollars are often poor assets for heirs because withdrawals are generally taxed as ordinary income. They can be excellent charitable assets, either through a qualified charitable distribution during life for eligible IRA owners or by naming charity as a beneficiary at death. The right answer depends on age, RMD status, charitable vehicles, and beneficiary goals.

Figure 2: Lifetime charitable deductions are generally limited by a percentage of adjusted gross income. The applicable limit depends on the asset, the charity, and the donor's facts.

A charitable bequest should be on the table when the donor wants to retain control during life. That is the cleanest reason. A bequest lets the donor keep the asset available for health expenses, family needs, business uncertainty, market volatility, and future changes in charitable priorities.

It should also be considered when the estate may be taxable. If a client is projected to exceed the federal exemption, or has exposure to a state estate tax, charitable bequests can reduce the taxable estate while preserving family transfers through the rest of the plan. This is where charitable planning belongs in the same room as credit-shelter planning, portability, trust design, beneficiary designations, and liquidity planning.

Bequests also work well when the charitable gift is intended to be a final legacy gift rather than an annual support commitment. Some families want a percentage of the residual estate to pass to church, a university, a community foundation, or a ministry after family needs are met. A percentage bequest can scale with the estate, while a fixed-dollar bequest can be easier for the charity to understand but may become too large or too small as assets change.

The weak spot is implementation drift. Wills, revocable trusts, beneficiary forms, and account titling must match. If the will says one thing and the retirement-account beneficiary form says another, the beneficiary form may control that account. A charitable bequest is only as good as the documents and beneficiary designations that actually move the money.

Lifetime giving should be considered when the donor has a high-income year and wants a current income-tax deduction. A business sale, large bonus, concentrated stock sale, Roth conversion plan, or unusual taxable-income event can make charitable timing valuable. In those years, bunching several years of charitable intent into one year, sometimes through a donor-advised fund or direct gifts, may create a better deduction pattern than spreading gifts evenly.

It should also be considered when the donor owns highly appreciated securities. Giving appreciated property directly can avoid the capital-gain recognition that would otherwise occur on a sale. For donors who already planned to give, that can turn a tax-inefficient asset into charitable capital without first creating a tax bill.

Lifetime giving can be especially attractive when the donor wants family involvement. Parents and grandparents can use charitable giving to teach values, build a family grant process, or let younger generations participate in decisions before the estate plan becomes permanent. That family-governance benefit does not show up on a tax return, but it can be more important than the deduction.

Finally, lifetime giving should be considered when the donor has more assets than needed for lifetime spending. This is a cash-flow question before it is a tax question. If the gift puts the donor's own independence at risk, the deduction is not worth it. Tax-aware does not mean tax-driven.

I would start with four questions.

First, is the estate likely to be taxable? If yes, charitable bequests can reduce estate tax, but we still need to decide which assets should go to charity and which should go to family. If no, a charitable bequest may still be appropriate, but it is probably a legacy tool more than a tax tool.

Second, is there a current income-tax problem worth solving? If the donor is in a high-income year, lifetime giving may create a timely deduction. If income is modest, the same gift may produce a weaker tax result, especially after AGI limits, the 0.5% floor for itemizers, and standard-deduction math.

Third, what asset is being given? Cash, appreciated securities, real estate, closely held business interests, retirement accounts, and life insurance policies all carry different tax and administrative consequences. The charity also has to be able to receive the asset. A simple cash gift is easy. A gift of private company stock or real estate requires more coordination.

Fourth, how much control does the donor need? If the donor may need the asset later, a bequest, revocable beneficiary designation, or split-interest structure may fit better than an outright lifetime gift. If the donor is comfortable parting with the asset now, lifetime giving may deliver both current tax value and current charitable impact.

The best plans often use both. Lifetime giving handles recurring generosity, high-income-year deductions, appreciated-asset opportunities, and family engagement. Bequests handle residual legacy intent, estate-tax reduction, retirement-account beneficiary planning, and gifts that should occur only after the donor's lifetime needs are settled.

Charitable bequests and lifetime giving are both valuable tools, but they are not substitutes. A bequest is usually about control, estate-tax planning, and legacy design. Lifetime giving is usually about current impact, income-tax planning, and asset-selection efficiency.

The real work is matching the tool to the goal. If the goal is to reduce a taxable estate while keeping control during life, the bequest deserves attention. If the goal is to offset a high-income year, donate appreciated assets, or involve family now, lifetime giving may be the better first move. Most charitably inclined families need a coordinated plan that decides what is given now, what is left later, and which assets should fund each bucket.

Our team will continue coordinating these conversations with clients, attorneys, and CPAs because the documents and the tax return have to tell the same story. Generosity is the starting point. Structure is what keeps the gift from creating avoidable tax friction.

All my best,

Brandon VanLandingham, CFA, CMT, CFP

Founder / CIO

Lifetime Gifting Strategies for Families With $10M+

Estate Planning Documents Every Oklahoma Family Needs

This piece is educational. It is not legal, tax, or accounting advice and is not a recommendation to take or refrain from any specific action. Tax law is fact-specific and changes regularly. Please coordinate any decisions discussed here with your attorney, your CPA, and Perissos before acting.

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1. Legal Information Institute, 26 U.S.C. section 2055, "Transfers for public, charitable, and religious uses." https://www.law.cornell.edu/uscode/text/26/2055 2. Internal Revenue Service, Revenue Procedure 2025-32, "2026 inflation adjusted amounts." https://www.irs.gov/pub/irs-drop/rp-25-32.pdf 3. Internal Revenue Service, Publication 551, "Basis of Assets," inherited property / basis other than cost. https://www.irs.gov/publications/p551 4. Internal Revenue Service, Publication 526, "Charitable Contributions," contribution limits. https://www.irs.gov/publications/p526 5. Internal Revenue Service, Topic No. 506, "Charitable contributions." https://www.irs.gov/taxtopics/tc506 6. Congress.gov, H.R. 1, 119th Congress, sections 70424 and 70425, charitable contribution deduction for non-itemizers and 0.5% floor for individuals. https://www.congress.gov/bill/119th-congress/house-bill/1/text 7. Legal Information Institute, 26 U.S.C. section 2522, "Charitable and similar gifts." https://www.law.cornell.edu/uscode/text/26/2522