The "Family Business Legacy Act of 2025" allows estate tax deductions for bequests to certain tax-exempt organizations, promoting family business legacies.
W. Steube
Representative
FL-17
The "Family Business Legacy Act of 2025" amends the Internal Revenue Code to allow a deduction from the taxable estate for bequests to certain tax-exempt organizations, specifically those described in sections 501(c)(4), (5), or (6). This deduction is limited to the value of the transferred property included in the gross estate and is reduced by any estate or death taxes payable out of the bequests. The deduction is disallowed if an interest in the same property also passes to a person or use not described in subsection (a), unless the interest is a qualified interest. These amendments apply to estates of decedents dying or bequests, devises, or transfers made after December 31, 2025.
Estate Tax Break Proposed for Donations to Lobbying & Business Groups Starting 2026
This bill, the "Family Business Legacy Act of 2025," proposes a significant change to federal estate tax rules. Starting after December 31, 2025, it would allow a deduction from a person's taxable estate for the value of money or property left in their will (a bequest) to specific types of tax-exempt organizations: 501(c)(4)s, 501(c)(5)s, and 501(c)(6)s. Essentially, it creates a new tax break for passing wealth to these groups upon death.
Beyond Charity: New Beneficiaries for Estate Gifts
Currently, you can get an estate tax deduction for leaving assets to traditional charities (like 501(c)(3)s – think educational foundations or public health charities). This bill expands that privilege to different kinds of non-profits:
- 501(c)(4)s: These are social welfare groups and civic leagues. They can engage in significant lobbying and some political campaign activity.
- 501(c)(5)s: These cover labor unions and agricultural/horticultural organizations.
- 501(c)(6)s: This includes business leagues, chambers of commerce, trade associations, and even professional sports leagues.
The key takeaway is that these groups often focus on advocacy, lobbying, and promoting specific industry, labor, or social agendas, unlike traditional charities. Adding Section 2059 to the tax code, as this bill proposes, means bequests to these organizations could reduce the total value of an estate subject to federal tax.
How It Works and Who It Affects
The mechanics are straightforward: if someone leaves $1 million to a qualifying 501(c)(6) trade association in their will, that $1 million could potentially be subtracted from their estate's value before calculating the estate tax owed. This primarily benefits wealthier individuals whose estates exceed the federal estate tax exemption threshold (which is currently quite high, affecting a small percentage of the population). It also directly benefits the recipient 501(c)(4), (c)(5), and (c)(6) organizations, potentially channeling significant funding towards them.
The bill includes some guardrails. For instance, if estate taxes have to be paid from the funds designated for the non-profit, the deductible amount is reduced accordingly. It also clarifies how property controlled through a 'power of appointment' (defined under Section 2041) fits into this deduction. The deduction is capped at the value of the transferred property actually included in the estate. These changes, if enacted, apply to estates of individuals dying after December 31, 2025.