Fdez

I messed it up a bit in my previous explanation. Sorry for the confusion. I think following is a better explanation:
Say your “net income before taxes” is $ 125,000 and your income tax rate on it is 20 %.
you are considering two options..
Option 1: Donate $ 100,000 to a charity, NOW.
Option 2: Put $ 100,000 in an account (call it account S) which would ultimately (say after n years) bequeathed to your Son.. and ask him to donate the funds in this account to the same charity.
Let’s see what difference it makes to the Charity at the end of all transactions i.e. after n years.
Option 1:
:: You give $ 100,000 to charity. This amount which you are donating is tax exempted.
:: After n years this would become 100,000*(1+Rc)^n. This is because even the returns generated by accounts of Charity are tax exempted.
:: You pay 20 % tax for remaining amount i.e. $ 25,000.
:: After paying taxes on $ 25,000, you are left with $ 20,000.
:: Put this $ 20,000 in account S. After n years and after the bequest it becomes 20,000 [{1+Rs(1-Ts)}^n]*[1-Te]. If your son donate this amount to charity as asked by you, the total amount the charity gets at the end is: [100,000*(1+Rc)^n] + 20,000*[{1+Rs(1-Ts)}^n]*[1-Te]
Option 2:
:: You pay taxes on the whole amount i.e. $ 125,000
:: You are left with $ 100,000
:: Put this $ 100,000 in account S. After n years and after the bequest it becomes 100,000 [{1+Rs(1-Ts)}^n]*[1-Te]. If your son donate this amount to charity as asked by you, the total amount the charity gets at the end is: 100,000*[{1+Rs(1-Ts)}^n]*[1-Te]
Thus the relative value is: [100,000*(1+Rc)^n] + 20,000*[{1+Rs(1-Ts)}^n]*[1-Te] upon 100,000*[{1+Rs(1-Ts)}^n]*[1-Te]
P.S.
:: $ 125,000 is used just to simplify the situation. Logic holds irrespective of the amount of net income. Let me know if some one needs an explanation on this.
:: In my earlier explanation I wrote, you get tax benefits on (a) the part of the income which you donated and in addition to that (b) on an equivalent amount from your remaining income. This is wrong. You get only (a).