Life and Death Planning for Retirement Benefits

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354 Life and Death Planning for Retirement Benefits
John’s descendants. By an agreement of all beneficiaries and the trustee, including a guardian to
represent the unborn descendants, approved by the Probate Court, the charity is paid a reduced
sum immediately (equal to the present value of its remainder) and in exchange gives up its $50,000
remainder. In effect, the trust is reformed so that the charitable beneficiary is paid its share in full
before September 30 of the year after the year of the participant’s death. A beneficiary who ceases
to be a beneficiary prior to that date (due to distribution or disclaimer of its share of the benefits)
is not counted as a beneficiary in applying the minimum distribution rules. Reg.
A-4(a). The reformation might persuade the IRS (assuming the trust meets all the other trust rules)
that the trust qualifies as a see-through. Whether it is effective to provide Dolly’s estate with an
estate tax deduction for this charitable gift is a separate question, since as of the date of death, that
gift was in the form of a non-qualifying split interest.
7.4 Income Tax Treatment of Charitable Gifts from a Trust or
Estate
Thi discusses certain income tax issues involved when retirement plan death benefits
are paid to a trust (other than an income tax-exempt trust) or estate, especially whether and how
an estate or trust can avoid income taxes on benefits payable to it that are used to fund charitable
gifts under the instrument. It does not seek to explain all the rules of trust income taxation. For
complete explanation of trust income tax rules, see the following four recommended treatises:
Abbin, Byrle M., Income Taxation of Fiduciaries and Beneficiaries (CCH, 2007, 2 vols.).
Boyle, F.L., and Blattmachr, J.G., Blattmachr on Income Taxation of Estates and Trusts , 15th Ed.
(2007), Practicing Law Institute, 810 Seventh Ave., New York, NY 10019 (cited in this book
as “Blattmachr”).
Ferguson, M. Carr, Freeland, James L., and Ascher, Mark L., Federal Income Taxation of Estates,
Trusts, & Beneficiaries, CCH/Wolters Kluwer (3rd Ed. 1999–2010).
Zaritsky, H. and Lane, N., Federal Income Taxation of Estates and Trusts, (“Checkpoint” On-line
Edition; Warren, Gorham & Lamont) (cited as “Zaritsky”).
These are cited in this Chapter as “Abbin,” “ Blattmachr,” “ Ferguson/Freeman/Ascher,”
and “Zaritsky,” respectively.
below assume that the fiduciary receives a distribution from the
retirement plan and, in the same year, funds a gift to a “public” charity or private
foundation . If the charitable gift is not funded in the same year the distribution is
received from the retirement plan, see If, instead of taking a distribution from the plan
and passing the distributed property out to the charity, the fiduciary transfers the retirement plan
itself to the charity, see
For ease of reading, this will sometimes refer only to trusts; the same rules apply to
estates unless otherwise specified.
7.4.01 Introduction to trust income tax rules, “DNI,” and the NIIT
Trusts and estates get a unique deduction on the way from “gross income” to “taxable
income”: The trust or estate can deduct certain distributions made to the trust’s or estate’s
beneficiaries The beneficiaries then pay the income tax on these distributions