The Family Business Legacy Act of 2025 would add a new section to the Internal Revenue Code to exclude the value of bequests to certain tax-exempt organizations from the value of a decedent’s gross estate. It targets organizations described in section 501(c) and exempt from tax under 501(a), specifically those in paragraphs (4), (5), or (6) of 501(c).
The bill also treats property received under powers of appointment as a bequest for purposes of the deduction, and it contemplates how any death taxes paid out of the bequest affect the deduction. A conforming amendment and an effective date are included to ensure the new rule is codified and applied consistently.
The deduction is capped by the value of transferred property included in the gross estate, and there are limited disallowance rules for certain non-described interests. The amendments apply to estates of decedents dying or bequests made after December 31, 2025.
In short, it changes how the estate tax base is calculated when the recipient is a qualifying exempt organization, and it lays out conditions, interactions with other IRC provisions, and an explicit effective date.
At a Glance
What It Does
Adds Sec. 2059 to the Internal Revenue Code, permitting a deduction from the gross estate for bequests to exempt organizations described in 501(c)(4), (5), or (6). It also treats powers of appointment as bequests for deduction purposes and compounds with taxes payable out of bequests. It includes a deduction limit and disallowance rules, plus a conforming amendment and an effective date.
Who It Affects
Estates of decedents with qualifying bequests, executors and probate professionals, and exempt organizations described in 501(c)(4), (5), or (6). Tax planners and attorneys advising on estate planning are also affected by the new rules and interactions with 2702(b) and 7520.
Why It Matters
This shifts the taxable estate calculation by removing certain bequests to exempt organizations from the estate value, potentially reducing federal estate tax receipts and changing how donors structure charitable transfers or family-business legacies.
More articles like this one.
A weekly email with all the latest developments on this topic.
What This Bill Actually Does
The bill adds a new provision to the tax code that lets bequests to certain exempt organizations reduce the value of the decedent’s taxable estate. It applies to organizations described in 501(c) and specifically (4), (5), and (6).
When a decedent leaves property to one of these groups, the value of that bequest is subtracted from the estate’s gross value for tax purposes.
If the property involved is includible in the estate because of a power of appointment under section 2041, that property is treated as a bequest for the purposes of the deduction. The bill also provides that any death taxes paid out of the bequest (or from the estate) are subtracted from the amount deductible under this section.
The deduction can’t exceed the value of the transferred property that is included in the gross estate. In cases where an interest passes to someone or for a use not described in the subsection, the deduction is disallowed unless the interest is a qualified interest under section 2702(b) and valued under section 7520 rules.
A conforming amendment inserts the new section into the table of sections, and the changes apply to estates of decedents dying or bequests made after December 31, 2025.
The Five Things You Need to Know
The bill adds Sec. 2059 to exclude bequests to exempt organizations from gross estate value.
Powers of appointment are treated as bequests for deduction purposes under the new section.
Taxes payable out of bequests reduce the amount deductible under Sec. 2059.
The deduction is capped at the value of the transferred property included in the gross estate.
The amendment includes a conforming table update and a 2025-12-31 effective date for applicability.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Bequests to exempt organizations—deduction mechanics
Section 2(a)-(e) adds the new Sec. 2059 to the IRC. It allows a deduction from the gross estate for bequests to organizations exempt from tax under 501(a) and described in 501(c)(4), (5), or (6). It also makes property includible under powers of appointment count as a bequest for this deduction. The section sets a cap tied to the transferred property’s value included in the gross estate and specifies how death taxes paid out of the bequest affect the deduction. It also includes an anti-abuse rule: if a non-described interest passes to a person for a use not described in subsection (a), the deduction is disallowed unless a qualified interest is used and valuation follows 7520 rules.
Conforming amendment
Section 2(b) adds Sec. 2059 to the table of sections for Part IV of Subchapter A, ensuring the new deduction is properly reflected in the organized scheme of the Code.
Effective date
Section 2(c) states that the amendments apply to estates of decedents dying or bequests made after December 31, 2025, establishing a clear temporal boundary for when the deduction may be utilized.
This bill is one of many.
Codify tracks hundreds of bills on Finance across all five countries.
Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Executors and estate planners who can leverage the deduction to reduce taxable estate value for bequests to eligible exempt organizations.
- Qualifying exempt organizations described in 501(c)(4), (5), or (6) that receive bequests as part of estate plans, potentially increasing the likelihood of bequests.
- Wealthy families or family-run businesses that channel legacy bequests to exempt groups as a strategic component of estate planning.
- Tax professionals (CPAs and attorneys) who advise on estate structuring can optimize plans around the new deduction.
- Donors who incorporate charitable bequests into estate plans may see improved tax efficiency when the beneficiaries are eligible organizations.
Who Bears the Cost
- Federal estate tax receipts may decrease due to the larger deductions claimed by estates with qualifying bequests.
- IRS and tax administrations face added compliance and audit considerations to verify descriptions of exempt organizations and the proper application of the deduction.
- Non-qualifying estates or bequests that don’t use the exemption may bear the relative burden of other taxpayers as the overall tax base shifts.
- Administrative costs for estates and courts may rise due to the added complexity of determining eligibility and ensuring proper documentation.
- Smaller estates without bequests to exempt organizations may bear opportunity costs if donors alter otherwise straightforward bequests to pursue the deduction.
Key Issues
The Core Tension
The central dilemma is whether to expand deductions for bequests to exempt organizations to support family business legacies and philanthropy while preserving a stable tax base and manageable administration.
The bill creates a meaningful policy shift by allowing a new deduction for bequests to certain exempt organizations, which could erode base tax revenues and alter charitable giving dynamics. It also imposes new compliance requirements, notably around confirming that the recipient is a qualifying exempt organization under 501(c) and detailing how powers of appointment are treated.
The interaction with other code provisions (2702(b) for qualified interests and 7520 valuation) introduces potential ambiguities in valuation and timing, creating room for disputes in high-stakes estate planning. Finally, the requirement that the deduction be capped to the transferred property’s value included in the gross estate places a hard limit on the benefit and may complicate multi-asset bequests or layered estate planning strategies.
Try it yourself.
Ask a question in plain English, or pick a topic below. Results in seconds.