Magazine article The CPA Journal

Lack of Form Ruins Charitable Deduction

Magazine article The CPA Journal

Lack of Form Ruins Charitable Deduction

Article excerpt

Clients sometimes question why they need professional assistance in estate planning and in drafting wills. The Burdick case illustrates what may happen if proper help is not obtained. (Swift, J.; Burdick Estate v. Commissioner, No. 34058-87, 96 T.C. NO. 8, 2/4/91.)

The decedent executed a holographic will, dated November 6, 1982. It provided for a number of small specific bequests, and, after providing for payment of administration expenses, the residue was to continue in trust. The terms of the trust provided for $9,000 payments to named beneficiaries, income to the decedent's brother for life, and, upon the brother's death, principal to be paid equally to the decedent's nephew and to a church.

When the decedent's federal estate tax return was filed in January 1985, a charitable contribution was claimed with respect to the one-half remainder interest in the residuary trust that would pass to charity.

Upon review, the IRS determined that the remainder interest passing to charity did not qualify for an estate tax charitable deduction, because it did not conform to the requirements of Sec. 2055(e)(2). That section states that a remainder interest passing in trust to a charity must be one of three proper forms: annuity trust, unitrust, or pooled income fund.

Subsequently, the estate proposed to the charity that its interest in the trust be satisfied with a payment by the trust of $60,000. The charity accepted the offer, and the sum was paid out of the decedent's brother's personal accounts (not the trust), in an attempt to qualify the interest for the estate tax charitable deduction. …

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