Charitable Bequests and Pennsylvania Inheritance Tax

Charitable giving is one of the few places in the Pennsylvania inheritance tax code where the answer is simply zero. Under 72 P.S. § 9111(c), transfers to or for the use of qualifying charitable, religious, and educational organizations, and to federal, state, or local government bodies, are exempt from Pennsylvania inheritance tax entirely — regardless of how large the gift is or how distantly (or closely) related the charity's mission is to the decedent. That makes charitable bequests one of the most efficient ways to reduce an estate's tax bill while supporting causes that matter to you.

If charitable giving is part of your estate plan, our estate tax planning service can help you structure the gift correctly and coordinate it with what you're leaving to family. The bequest language itself lives in your will — see our wills service page — and we handle these plans for families throughout central Pennsylvania, including Camp Hill.

Which gifts actually qualify for the exemption

Section 9111(c) exempts transfers to organizations operated exclusively for religious, charitable, scientific, literary, or educational purposes, and to government entities, so long as no part of the net earnings benefits any private individual and the organization is recognized for these purposes. In practice, this covers most 501(c)(3) public charities, churches and religious institutions, colleges and universities, hospitals, and gifts to federal, state, or municipal governments. It does not automatically extend to every nonprofit — a 501(c)(4) social welfare organization or a 501(c)(6) trade association, for example, may not qualify even though it is tax-exempt for federal income tax purposes. When in doubt, confirm the organization's classification before relying on the exemption in your planning.

Structuring the bequest correctly

A charitable bequest that fails to name the charity precisely is one of the most common — and most avoidable — estate planning mistakes. Best practice:

• Use the charity's exact legal name, not a nickname or shortened version, along with its EIN and current address, all of which the charity's development office can provide on request.
• Decide whether the gift is a specific dollar amount, a percentage of the residue, or a specific asset (a piece of real estate, a stock position, a retirement account). A percentage of the residue tends to age better than a fixed dollar figure, since it scales automatically with the estate's actual value at death rather than becoming disproportionately large or small.
• Include a contingent or remainder gift clause naming a backup charity (or your family) in case the named charity has merged, dissolved, or changed its mission by the time you die.

Using retirement accounts as the charitable gift

One of the most tax-efficient charitable planning moves available is naming a charity as the beneficiary of a traditional IRA or 401(k), rather than leaving the account to children and leaving cash or other assets to charity. Retirement accounts hold "income in respect of a decedent" (IRD) — meaning the income tax that was deferred during your lifetime is still owed when the funds come out, and your children would owe ordinary income tax on every withdrawal. A qualifying charity, by contrast, pays no income tax on the distribution at all. Flipping the allocation — retirement funds to charity, other assets (which get a stepped-up basis) to family — often lets the same dollar amount reach both your family and your chosen charity while eliminating tax that would otherwise be paid twice.

Beneficiary designations vs. bequests in the will

Charitable gifts don't have to run through the will at all. Naming a charity directly as a beneficiary (or contingent beneficiary) on a retirement account, life insurance policy, or payable-on-death account passes the gift outside probate, avoids any REV-1500 disclosure complexity for that asset, and can be updated any time without amending your will. Many clients use a combination — a modest specific bequest in the will for a cause they want publicly acknowledged, plus a beneficiary-designation gift of retirement assets for the larger, tax-driven piece.

Charitable remainder trusts and charitable lead trusts

For larger estates or clients who want income during life along with an eventual charitable gift, two trust structures are worth discussing with your attorney and CPA:

• A charitable remainder trust (CRT) pays income to you (or another named beneficiary) for life or a term of years, with the remainder passing to charity at the end of the term. It can also be useful for lifetime tax planning when funded with appreciated assets.
• A charitable lead trust (CLT) does the reverse — the charity receives an income stream for a period of years, after which the remaining trust assets pass to your family, often with meaningful gift or estate tax benefits.

Both are federal tax structures layered on top of, not a replacement for, your Pennsylvania inheritance tax planning, and both require careful drafting to work as intended.

Donor-advised funds and community foundations

A donor-advised fund (DAF) or a gift to a community foundation lets you make one bequest to a single sponsoring organization, which then distributes grants to multiple causes over time according to your written wishes or a successor advisor you name. This can be a practical solution when you want to support several smaller causes without listing each one by exact legal name in your will, or when you want flexibility for a fund to continue evolving with your family's charitable priorities after you're gone.

Common mistakes to avoid

• Misnaming the charity — using a nickname, an outdated name after a merger, or confusing similarly named organizations (there are, for example, multiple unrelated charities using "Humane Society" in their name).
• Naming a defunct organization with no contingent beneficiary, which can send the gift into the residuary estate or intestacy instead of to any charitable purpose at all.
• No contingency plan if the named charity later merges, dissolves, or changes its exempt status.
• Leaving a charity a fractional share of a hard-to-divide asset — half of a house or a family business interest — which can force an awkward sale or buyout process the charity never wanted to be part of.
• Forgetting to claim the charitable deduction on the REV-1500. The exemption isn't automatic on paper — it needs to be properly reported (generally via Schedule J or the return's charitable deduction section) so the Department of Revenue excludes the charitable share from the taxable estate.
• Failing to notify the charity. Many charities want advance notice of a planned gift, both to ensure they can accept it (some cannot accept real estate or certain business interests) and to allow appropriate recognition or stewardship during your lifetime.

Interaction with the federal charitable estate tax deduction

For the small number of Pennsylvania estates large enough to owe federal estate tax, charitable bequests also qualify for an unlimited federal charitable estate tax deduction, separate from and in addition to the Pennsylvania inheritance tax exemption. The two systems are calculated independently, but the planning goal is usually the same: a well-drafted charitable bequest reduces or eliminates tax at both the state and federal level for the charitable share, while leaving the rest of your plan for family exactly as you intend. For more on how state and federal transfer taxes interact, see our inheritance and estate tax overview and browse related topics in our FAQ section.

Talk with a Pennsylvania estate planning attorney

Charitable giving through your estate plan can support causes you care about and meaningfully reduce what your family pays in tax — but only if the gift is drafted with the right legal name, the right asset, and a contingency plan. Contact our office for a free consultation to build a charitable giving strategy that fits your whole estate plan.