Discussion:Estate Charitable Deduction
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Discussion Forum Index --> Tax Questions --> Estate Charitable Deduction
| 1 March 2007 | |
| Estate is the beneficiary of an IRA. The IRA is the sole asset of the estate. The residue of the estate is required under the terms of the will to be distributed to 10 foreign charities in equal shares.
Since foreign charities will qualify for the estate tax charitable deduction and the fiduciary income tax deduction, is there anything to prevent the estate from claiming an estate tax charitable deduction for the value of the distribution and a fiduciary income tax deduction for the same amount? This seems like double-dipping, but I can find nothing in the law that prevents this from happening. | |
| 1 March 2007 | |
| Sec. 642 before Sec. 661 You can't do both in the same year. (although you can consider what isn't distributed, reserved) Treatment is language dependent. | |
| 1 March 2007 | |
| CTtax, I believe that it would be possible to claim a deduction on both the 1041 and the 706 for the same IRD that is distributed to charity. The key here is that IRD, although tecnically corpus, is treated as gross income for purposes of Sec. 642(c). | |
| 1 March 2007 | |
| If the language gives the executor discretion to satisfy a specific charitable bequest with IRA funds, for example, the income attributable to that bequest would be treated as a separate share and end up on a K-1, no? Aha I still haven't read the question correctly...706 deduction and 1041 deduction are not mutually exclusive. | |
| 2 March 2007 | |
| Right. If the IRA has a $1 million balance, the fractional bequests to the 10 charities would result in a deduction on Form 1041 for $1 million. In addition, the estate would claim a Sec. 2055 deduction in the amount of $1 million on the 706. The result would be the same if the 10 charities were the named beneficiaries of the IRA, except that the executor would not be required to file Form 1041 at all. | |
| 2 March 2007 | |
| Not filing the 1041 unfortunately implies that nobody gets paid. Procedurally in a case similar to this we withdrew IRA funds to cover administrative expense and then assigned the balance directly to the separate charities. | |
| 2 March 2007 | |
| If the charities are the sole designated beneficiaries of the sole asset of the estate (an IRA), then there would be no probate and no 1041 to file. Assigning an IRA to a charity results in shifting the taxation of the IRA to the charity under Sec. 691(c) if the gift is made under the terms of the decedent's will or trust. Thus, the practical effect is the same as if the estate claimed a charitable deduction for the value of the IRD included in the estate. | |
| 2 March 2007 | |
| Okay. If the IRA disignates the charities as beneficiary there is no probate, but in this case we are given that the Estate is the beneficiary. In New York this requires a Surrogate's procedure with a formal accounting and the Attorney General representing the charities. Major hooha and lots of people to pay. On the plus side you get a court order to split the IRA. | |
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