Charitable Giving from an Inheritance: Tax-Smart Strategies (2026)

Why Inheritance Changes the Charitable Giving Calculus

In a normal year, your giving options are limited: you can write checks, donate stock you've held for years, or contribute to a donor-advised fund. The tax math is straightforward. An inheritance reshapes the picture in three ways:

• Step-up basis creates zero-gain donated assets. Inherited stock, funds, and real estate receive a new cost basis equal to the date-of-death fair market value under IRC § 1014.¹ If you donate those assets directly to charity within months of inheriting them, your embedded gain is zero — no capital gains tax for you, and the charity still receives the full fair market value.
• Inherited IRAs create mandatory taxable income — which charitable tools can neutralize. Non-spouse beneficiaries must deplete inherited IRAs within 10 years (SECURE Act, IRC § 401(a)(9)(H)). If the original owner died after their Required Beginning Date, annual RMDs are required in years 1-9 (T.D. 10001). Beneficiaries who are 70½ or older can redirect those mandatory distributions to charity as QCDs — excluding them from income entirely.
• The windfall effect makes bunching easy. Charitable deductions only work if you itemize, and itemizing only beats the standard deduction if your total deductions are large enough. A $1M inherited brokerage account contributed to a donor-advised fund in a single year can generate a deduction far exceeding the standard deduction ($32,200 MFJ in 2026²), making the charitable deduction fully effective. In an ordinary year, many people can't get over the standard deduction threshold.

Strategy 1: Donate Inherited Stock Directly

The most straightforward charitable giving strategy for an inherited brokerage account: transfer shares directly to a charity or donor-advised fund. Never sell first.

Why this matters — even with step-up basis

When you inherit stock, IRC § 1014 resets your basis to the date-of-death value. If you sell immediately after inheriting, your capital gain is minimal. But if you hold the stock for years — as many inherited portfolios sit untouched — your gain accumulates again on top of the stepped-up basis. When you eventually sell, you owe tax on the appreciation since the date of death.

By donating appreciated inherited stock directly, you:

• Avoid any capital gains tax on appreciation since step-up (including the 3.8% NIIT above $200K single / $250K MFJ)
• Deduct the full current fair market value — not just your stepped-up basis
• Send 100 cents on the dollar to the charity instead of 80-85 cents after tax

2026 capital gains rates at stake

The rates you avoid by donating stock rather than selling it (per IRS Rev. Proc. 2025-32):²

• 0% LTCG: taxable income ≤ $49,450 single / $98,900 MFJ
• 15% LTCG: up to $491,050 single / $553,850 MFJ
• 20% LTCG: above $492,300 single / $553,850 MFJ
• +3.8% NIIT on net investment income above $200,000 single / $250,000 MFJ

For a beneficiary with a $500K inherited brokerage account that has appreciated 30% since step-up ($150K gain), donating those shares rather than selling saves up to $29,700 in federal tax (20% LTCG + 3.8% NIIT on $150K gain at the highest bracket).

How to execute

1. Request a stock transfer (in-kind) from the inherited brokerage account to the charity's brokerage account or a donor-advised fund sponsor.
2. The deduction equals the shares' fair market value on the date of transfer.
3. The charity (or DAF) sells the shares and pays no tax — they're tax-exempt.
4. Subject to the 30% AGI limit for appreciated property donations to public charities (see below).³

Strategy 2: Donor-Advised Fund (DAF)

A donor-advised fund is a charitable account sponsored by a public charity (Fidelity Charitable, Schwab Charitable, Vanguard Charitable, and community foundations are common sponsors). You contribute assets to the DAF, receive an immediate charitable deduction, invest the funds, and recommend grants to individual charities over time.

Why a DAF works well with an inheritance

You don't have to decide which charities to support in the same year you inherit. A DAF separates the tax decision (when to get the deduction) from the giving decision (when and where to distribute). You can:

• Contribute $500K of inherited stock to the DAF in 2026 (the inheritance year), take the deduction while your income is potentially elevated, and then distribute $50K/year to individual charities over the next decade.
• Invest the DAF balance in a diversified portfolio. All growth inside the DAF is tax-free.
• Name successor advisors so the DAF continues your family's philanthropy after your death.

AGI limits for DAF contributions

Deductions for DAF contributions are subject to AGI-based limits:³

• Cash contributions: deductible up to 60% of AGI
• Appreciated property (stock, real estate): deductible up to 30% of AGI
• Unused deduction carries forward up to 5 years

Example: You have $300K AGI and contribute $200K of appreciated inherited stock to a DAF. Your deduction is limited to $90K this year (30% × $300K). You carry forward $110K and deduct it in 2027 and 2028.

DAF vs. donating directly to charity

If you know exactly which charities you want to support, donating directly is simpler and slightly more efficient (DAFs charge a small administrative fee). DAFs make sense when: you want to give now but decide later, you're supporting many charities, or the charity doesn't accept stock transfers directly.

Strategy 3: QCD from an Inherited IRA (Age 70½+)

A Qualified Charitable Distribution (QCD) is a direct transfer from an IRA to a qualifying charity.⁴ The transfer counts toward your Required Minimum Distribution and — unlike a regular distribution followed by a charitable deduction — is excluded from your gross income entirely. You get no deduction, but you also report no income. For beneficiaries who don't need the IRA distribution for living expenses, this is often the single most tax-efficient strategy available.

QCD from an inherited IRA: the rules

• Age requirement: the IRA beneficiary (you, not the original owner) must be age 70½ or older at the time of the distribution.
• Account type: QCDs are permitted from traditional IRAs, Roth IRAs, and inherited IRAs. They are not available from 401(k)s, 403(b)s, or SEP/SIMPLE IRAs that are still receiving contributions.
• 2026 QCD limit: $111,000 per person per year (IRS Rev. Proc. 2025-32).²
• RMD satisfaction: a QCD from an inherited IRA counts toward the annual RMD for that account under T.D. 10001.
• Direct transfer required: the check must be made payable directly to the charity. If the funds pass through your hands first, the QCD rules do not apply.

QCDs and inherited IRAs with annual RMDs

For inherited IRA beneficiaries who are required to take annual RMDs under T.D. 10001 (because the original owner died after their Required Beginning Date), a QCD is particularly valuable. The RMD is mandatory — you owe it regardless. By routing it to charity as a QCD, you satisfy the RMD, avoid income tax on the distribution, and redirect the money to a cause you support. All three outcomes at once.

If the original owner died before their RBD — including all inherited Roth IRAs (Roth owners have no RBD) — annual RMDs are not required. You can still make QCDs from the inherited Roth if you are 70½+, but there is no mandatory distribution to satisfy.

Strategy 4: Charitable Remainder Trust (CRT)

A Charitable Remainder Trust is an irrevocable trust that provides you with an income stream for a set period (up to 20 years, or your lifetime), and then distributes the remaining assets to one or more charities when the trust terminates.⁵ CRTs are a more complex giving strategy suited for large inherited assets — generally $500,000 or more — where the tax savings and income benefits justify the setup cost.

How a CRT works with inherited assets

1. You transfer inherited appreciated property (stock, real estate, a concentrated position) into the CRT.
2. The CRT sells the asset tax-free — no capital gains tax, because the CRT is tax-exempt.
3. The CRT invests the full proceeds and pays you an income stream — either a fixed dollar amount (CRAT, Charitable Remainder Annuity Trust) or a percentage of the trust's value each year (CRUT, Charitable Remainder Unitrust).
4. You receive an immediate charitable deduction equal to the present value of the remainder interest — the amount that will eventually pass to charity. The IRS requires this remainder to be at least 10% of the initial funding amount.
5. You pay income tax on the income you receive each year (the "tier system" taxes the distributions in order: ordinary income first, then capital gain, then tax-free).
6. At the trust's termination, the remaining assets pass to your designated charities.

When does a CRT make sense?

A CRT works best when:

• You inherited a large, highly appreciated asset (or one you expect to appreciate further) that you would otherwise sell and reinvest at a lower after-tax amount.
• You want income from the inheritance but don't need it as a lump sum.
• You have meaningful charitable intentions — the charity must receive at least 10% of the original funding amount in present-value terms.
• You can absorb the setup costs: attorney fees for the trust document, and potentially an ongoing trustee fee.

CRAT vs. CRUT

• CRAT (Annuity Trust): pays a fixed dollar amount each year. Simple but inflexible — if trust assets decline, the fixed payout can deplete the trust early.
• CRUT (Unitrust): pays a fixed percentage of the trust's annual value. The payout fluctuates with investment performance, which provides some inflation protection and reduces depletion risk. More commonly recommended for new funding.

Strategy 5: Private Foundation

For very large inheritances — generally $5 million or more — a private foundation offers maximum control over grantmaking. You (and your family) direct all grants, set the investment policy, and define the foundation's mission. The tradeoffs:

• Deduction: cash contributions deductible up to 30% of AGI; appreciated property up to 20% of AGI — lower limits than public charities or DAFs.
• Excise tax: 1.39% excise tax on net investment income (IRC § 4940).
• 5% distribution requirement: the foundation must distribute at least 5% of its assets annually for charitable purposes.
• Self-dealing rules: strict prohibitions on transactions between the foundation and "disqualified persons" (founders, family members, major donors). Violations carry significant excise taxes.
• Administrative overhead: Form 990-PF annually, accounting, legal compliance. Typically $15,000–$40,000/year in professional fees for a mid-sized foundation.

For most inheritance recipients, a donor-advised fund provides 90% of the control and flexibility of a private foundation at a fraction of the cost and complexity. The primary advantage of a foundation is the ability to employ family members in a meaningful advisory role, have full control over grants, and build a lasting institutional identity. If those matter, the foundation structure is worth the overhead.

The New 2026 Rule: OBBBA Charitable Deduction Floor

The One Big Beautiful Bill Act (enacted July 2025) introduced a new 0.5% of AGI floor on itemized charitable deductions, effective for tax years beginning January 1, 2026.⁶ The first 0.5% of your AGI in donations generates no deduction — only contributions above that threshold are deductible.

Example: You have $400,000 AGI. The first $2,000 of your charitable donations (0.5% × $400,000) is not deductible. Any amount above $2,000 is deductible as before, subject to the applicable AGI limits.

What this changes — and doesn't change

• Doesn't affect QCDs. QCDs work by excluding the distribution from income entirely — they don't depend on the itemized deduction. The 0.5% floor has no effect on QCDs from inherited IRAs.
• Minor impact on large givers. If you contribute $200,000 to a DAF on a $400,000 AGI, the floor reduces your deduction by $2,000 (1%). Immaterial on a large gift.
• More significant for smaller givers who itemize. If you itemize and give $5,000 on a $300,000 AGI, the $1,500 floor means only $3,500 is deductible. This matters for moderate givers who were just over the standard deduction threshold.
• Doesn't change AGI percentage limits. The 60%/30% AGI caps on cash and property donations remain. The 0.5% floor is subtracted first, then the AGI caps apply.

For inheritance-related charitable giving — which typically involves large transfers — the 0.5% floor is a minor consideration but worth noting in planning conversations.

Building the Right Strategy for Your Situation

The strategies above aren't mutually exclusive. A well-structured charitable giving plan for an inheritance might combine several:

Decision framework by situation

• Inherited stock / brokerage → donate highest-gain positions directly or via DAF
• Inherited IRA, age 70½+ → QCD up to $111,000/year
• Large inherited asset, want income stream → CRT
• Want to give over many years, many charities → DAF
• Large inheritance ($5M+), want maximum family control → private foundation
• Uncertain which charity, want deduction now → DAF

When to Involve a Specialist

Straightforward charitable giving — donating appreciated stock, contributing to a DAF — is something most people can execute with guidance from their brokerage. Complexity increases quickly when:

• You're coordinating multiple strategies. Combining QCDs, DAF contributions, and CRTs requires careful sequencing to avoid wasting deduction capacity or triggering unintended income.
• A CRT is involved. CRT design, funding, trustee selection, and the ongoing "tier" income tax treatment require an attorney and often a tax advisor.
• The estate has both inherited IRA assets and large taxable accounts. The optimal strategy — QCDs vs. taxable distributions, which assets to donate vs. sell vs. hold — depends on your overall tax picture across accounts. See our inherited IRA guide for context.
• The estate is large enough to approach the estate tax threshold. At $15M per person (OBBBA, 2026), most recipients won't have an estate tax problem. But if the inheritance pushes your own estate close to that threshold, charitable bequests in your updated estate plan reduce your estate tax dollar for dollar. See our inheritance and estate tax guide.
• You're considering a private foundation. Foundation setup and ongoing compliance requires attorneys, accountants, and significant ongoing commitment.

A fee-only financial advisor who specializes in inheritance planning will evaluate your specific combination of inherited assets, tax bracket, charitable goals, and existing financial plan — and identify which strategies make sense without selling you products or taking commissions.