Charitable Bequests Must Follow the Rules to Be Deductable

Charitable Bequests Must Follow the Rules to Be Deductable

By: Martin M. Shenkman, CPA, MBA, JD

The James D. Galloway Revocable Living Trust provided that the residue of the trust would pass in four equal shares to his son, a relative, and two charities. Each of the four beneficiaries was to receive 50% of their one-quarter share in early 2006 and the remainder on January 1, 2016, when the Trust was to terminate. The trust provided that if an individual beneficiary dies before then, his share would be distributed to the remaining beneficiaries. The estate tax return claimed an estate tax charitable deduction under Code Section 2055 based on the portion of assets anticipated to ultimately be distributed to the charities. The IRS denied the deduction stating that the Trust was a “split interest trust” that divided the same property between charitable and non-charitable beneficiaries. No portion of a trust with equal charitable and non-charitable beneficiaries qualifies for an estate tax contribution deduction unless the trust qualifies as a split-interest trust. This trust didn’t.Galloway v. U.S., (CA 3 6/21/2007) 99 AFTR 2d Para. 2007-1115

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