Description

IRC Section 642(c) governs income tax charitable deductions for trusts and estates, which are substantially different from charitable contribution deductions for individuals and corporations under Sec. 170 and Sec. 642(c)(1). Trust and estates attorneys must have a complete understanding of these rules and reporting requirements for claiming charitable deductions and the impact on certain tax and estate planning strategies.

Section 642(c) sets forth unique rules on charitable deductions. There is no adjusted gross income limitation for trusts, and trusts can contribute to foreign charitable organizations. Since trusts can be taxed themselves or as carryout taxable income to beneficiaries, trust and estate attorneys and fiduciaries need to understand these rules to preserve these valuable deductions.

Although deductible on the estate return, specific bequests are considered deductions from the principal and do not generate a tax deduction. However, making charitable bequests with particular assets can generate significant tax savings, which must be appropriately reported to ensure deductibility.

In addition, the OBBBA introduces several changes impacting charitable deductions, particularly for trusts, such as unlimited deduction potential, specific trust requirements, and the possibility of changes to individual charitable deduction rules impacting trusts and estate planning.

Trusts and estates must adhere to various rules to obtain income tax deductions, such as the governing document and gross income requirements, charitable purpose and eligible donee requirements, and other additional planning and reporting considerations.

Listen as our panel of trust and estate tax experts explains the caveats and considerations for income tax charitable deductions under Sec. 642(c), the impact of OBBBA, deduction of the charitable remainder interest, split-interest gifts, governing instrument and gross income requirements, and planning and reporting requirements.