Probate & Trust Law Section Conference Manual ... - Minnesota CLE

II. INCOME TAX DEDUCTION FOR DISTRIBUTIONS TO CHARITY FROM ESTATES
AND TRUSTS.
A. General Rule: An estate or trust is allowed an income tax deduction for contributions
to charities if:
1) The contribution is authorized under the terms of the governing instrument of
the will or trust; and
•NOTE: If the original will/trust does not clearly create the charitable gift,
then later attempts to modify or clarify the document’s terms may not be
honored by the IRS. The IRS rejected attempts to clarify or refine the
charitable deduction through a court order (Chief Counsel Advice
200848020) and through a power of appointment which was integrated
with the will (Brownstone, Clyde v. U.S., 465 F3rd 525) because the
original document was not sufficient by itself to establish the charitable
gift.
2) the contribution is paid from income. IRS Code §642, RIA C-2307.
•NOTE: The deduction is normally taken in the year the payment is made.
However, the estate may make an election under IRS Code §1.642(c)-1(b)
to take the deduction on the 1041 return for the year prior to the year of
distribution. This protects an estate which receives income but does not
transfer that income to the charity until the next tax year.
•Note to tax preparers: The estate/trust takes a charitable deduction for the
charity’s portion of the taxable income. Even if charities are a residual
beneficiary, charities should not be given a K-1 for their share of the
estate’s income.
•NOTE: For pooled trusts and estates or trusts established before 10-9-69,
there is a deduction for amounts permanently set aside for the benefit of a
charity.
B. Gifts of Principal—No Deduction.. No income tax deduction is allowed for
distributions of principal to charity. Thus, gifts of tangible objects (i.e., art work, other
personal property, real estate, pecuniary gifts of cash, etc.) do NOT qualify for an income
tax deduction for the estate or trust.
• Charitable gifts from principal can be deducted for estate tax purposes (Form
706) but not for income tax purposes (Form 1041).
• Alternatively, if the item is distributed to an individual beneficiary, that person
can donate the item to the charity and take a charitable contribution deduction on
his/her personal income tax return (Form 1040, Schedule A & Form 8283).
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