Estate Tax Break Proposed for Bequests to 501(c)(4) Advocacy Groups, Starting 2026

The “Family Business Legacy Act of 2025” is dropping a new tool into the estate planning toolkit, and it’s a big one for anyone dealing with the federal estate tax. Starting with estates of people who pass away after December 31, 2025, the bill creates a new, significant deduction that lets wealthy estates subtract the value of any gifts left to specific types of tax-exempt organizations from their taxable estate.

The New Loophole: Tax-Free Giving to Advocacy Groups

Currently, if you leave money to a traditional public charity (like a hospital or university, generally a 501(c)(3)), that gift is already deducted from the taxable estate. This bill expands that break to include bequests made to organizations under sections 501(c)(4), 501(c)(5), and 501(c)(6) of the tax code. We’re talking about social welfare organizations (like advocacy groups and political nonprofits), labor unions, and business leagues (like trade associations).

Why does this matter? Unlike 501(c)(3) charities, these other groups—especially the 501(c)(4)s—often engage heavily in political lobbying and advocacy, sometimes without disclosing their donors. For estates large enough to trigger the federal estate tax (which currently affects only the wealthiest fraction of estates), this means a new avenue for reducing the tax bill while directing funds to groups that often have a distinct political or industry focus.

Who Benefits and Who Pays?

If you’re a high-net-worth individual or family, this is a massive incentive. Say an estate is valued at $50 million. If the deceased leaves $10 million to a major industry trade association (a 501(c)(6)), that $10 million is now shielded from the estate tax under this new provision. The impact is clear: the estate saves millions in taxes, and the trade association gets a huge, tax-advantaged influx of cash.

But policies like this don't exist in a vacuum. When the government cuts a tax break, it means less revenue flowing into the U.S. Treasury. The estate tax is designed to collect revenue from the wealthiest, and every dollar deducted here is a dollar that isn't available for federal programs, infrastructure, or debt reduction. Essentially, the cost of funding these specific advocacy and trade groups is indirectly subsidized by the public purse, raising questions about who bears the cost of this reduced tax intake.

The Fine Print: Complications and Caveats

While the deduction is straightforward on the surface, the bill includes some necessary but complex guardrails. For example, if the will requires that estate taxes be paid out of the money gifted to the exempt organization, the deductible amount is reduced by the amount of tax taken out. This prevents the estate from double-dipping. Furthermore, if you try to split a piece of property—say, a family farm—between a qualifying advocacy group and a non-qualifying heir, the deduction only applies if the split interest meets complex “qualified interest” rules and valuation standards from existing tax law (specifically referencing Section 7520). This level of complexity means that while the concept is simple, executing the transfer without a top-tier estate planning attorney will be nearly impossible.