Family Business Legacy Act of 2025
The Family Business Legacy Act of 2025 would change how estate taxes are calculated by allowing bequests to certain nonprofit organizations to reduce the value of a taxable estate. Specifically, bequests, devises, or transfers to organizations exempt under 501(a) and described in 501(c)(4), (5), or (6) would be deductible from the gross estate when determining estate tax. The bill treats property received by these organizations through powers of appointment as if the decedent had bequeathed it. It also sets rules about how taxes paid out of bequests affect the deduction, places a cap on the deduction, and provides safeguards to prevent deductions if the transfer mixes with non-qualifying interests. The changes would apply to estates of decedents dying or bequests made after December 31, 2025.
Key Points
- 1Targets eligible organizations: Bequests to organizations described in 501(c)(4) (civic leagues and social welfare organizations), 501(c)(5) (labor and agricultural organizations), and 501(c)(6) (business leagues) would be deductible from the value of the taxable estate for estate tax purposes.
- 2Treatment of powers of appointment: Property included in the estate under powers of appointment (section 2041) that is received by these eligible organizations would be treated as a bequest for purposes of the deduction.
- 3Tax mechanics: If death taxes (estate, inheritance, etc.) are paid out of the bequests, the deductible amount is reduced by those taxes.
- 4Deduction limits: The deduction for any transfer cannot exceed the value of the transferred property that is included in the gross estate.
- 5Disallowance rules: If some interests in the same property go to a non-qualifying use or recipient, the deduction can be disallowed unless the qualifying interest is a “qualified interest” under other tax rules (and properly valued).
- 6Administrative update: The law adds a new section (Sec. 2059) to the Internal Revenue Code and aligns the table of sections accordingly.
- 7Effective date: Applies to estates of decedents dying or bequests made after December 31, 2025.