Discussion:IRA Distribution to Decedent's estate - charitable contributions
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> IRA Distribution to Decedent's estate - charitable contributions
| 3 March 2007 | |
| Completing 1041 and have several questons:
1) Are the decedent's IRA distributions of $23K to the estate(there were no named beneficiaries)considered taxable income for the estate? 2) Are Catholic Churches and Catholic Nun Orders considered charitable organizations? The will specified a $52+K bequest before distribution to the legatees 3) If these are considered charitable donations can the income from the IRA be offest by the donations to spare the legatees from paying taxes on the proceeds of the IRA even though the proceeds of the IRA are not specifically earmarked for the two organizations. 4) FYI - The estate's total value is less than $150K | |
| 3 March 2007 | |
| Then the bequest to the Catholic organizations should be listed in Schedule A and the IRA distributions should be included in Schedule B and K-1s will be required for each of the legatees? | |
| 3 March 2007 | |
| If the will stated a pecuniary bequest be paid from the estate, and the estate paid it, it is deemed paid from corpus of the estate, not income, and not by the beneficiaries. | |
| 3 March 2007 | |
| Not unless the will gives the executor specific authority to satisfy the specific bequest as he chooses. In general Schedule A deductions can only come out of income and the IRA distribution is corpus. There is normally no Schedule A deduction for specific bequests. | |
| 3 March 2007 | |
| for cites, see Sec 642(c) and Crown Income Charitable Fund v. Commr., 98 TC 327 (1992) | |
| 3 March 2007 | |
| Remember to look for the 8606 form of the decedent - he may have had basis in the IRA. | |
| 3 March 2007 | |
| The the IRA distribution is corpus? - please clarify. The will does not state any specific means or pool of monies from which to satisfy any bequest. The fiduciary can settle debts and bequests as they deem in the best interest of the estate. | |
| 3 March 2007 | |
| To get a charitable deduction:
1) It must be made from taxable gross income. 2) Must be made pursuant to the terms of the estate's governing instrument. 3) Specific and pucuniary bequests are generally required by law to be paid out of corpus. As such, the payment is not from taxable gross income and not considered a charitable contribution. | |
| 3 March 2007 | |
| So then IRA distribution is considered DNI and the fiduciary must complete a K-1 for each legatee. The legatess then will have to report of there 1040 the IRA monies received as taxabke income? | |
| 3 March 2007 | |
| Also where on the 1041 is the IRA distribution listed - line 8, Other Income? | |
| 3 March 2007 | |
| To the extent that the beneficiaries of the estate received a distribution, then the DNI is taxable to them.
Yes, list the taxable amount of the IRA in Other Income on the 1041. | |
| 3 March 2007 | |
| Tom, welcome to the discussion board. You can fill out your profile by clicking on Profile, then click on the Edit tab at the top, write in your info, then click on the Save Page button at the bottom. Thanks. | |
| 3 March 2007 | |
| After the fact that is what happens. Note that under current law you may not even need the specific language. The executor should be able to effect the charitable contribution as a direct distrbution from the IRA. | |
| 3 March 2007 | |
| Dennis, are you saying that the executor could change the beneficiary of the IRA to the charity with the trustee before the distribution happens? | |
| 3 March 2007 | |
| that's an interesting development and how would this work given that in this case the IRAs were distributed to the estate, the bequest made to the charities and the residue distributed to the legatees.
My concern now is that the legatees are going to be hit with a tax liability on the DNI from the IRAs | |
| 3 March 2007 | |
| Can the legatees defer the DNI as taxable income to 2007 (the year it was actually paid) even if the estate takes the DNI deduction in 2006? | |
| 3 March 2007 | |
| I believe Dennis was stating that this might have been preventable, but now it is too late. If the estate has DNI, AND there was a distribution, then the estate takes the income distributed deduction, and the beneficiaries must include in income. If the estate is on a fiscal year, then the K-1 could possibly be reported in 2007 (as a 2006 1041). | |
| 3 March 2007 | |
| The first filing of the 1041 determines the year elected for the estate. | |
| 3 March 2007 | |
| Doesn't the new law allow a direct transfer of IRA funds to charity without it being classified as a distribution? I would think the executor will have the authority to effect such a transfer. | |
