Life and Death Planning for Retirement Benefits

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356 Life and Death Planning for Retirement Benefits
7.4.02 DNI deduction, retirement benefits, and charity
A retirement plan distribution received by a trust becomes part of the trust’s “distributable
net income” (DNI) to the extent the distribution is includible in the trust’s gross income. See Reg.
Examples 6 and 9. If the trust has more than one beneficiary, the extent, if any, to
which the trustee can allocate this DNI to the beneficiary(ies) of the trustee’s choice may be
determined under the separate share regulations; see
There is no DNI deduction allowed for a distribution from an estate or trust to a charity.
Although the Code could be interpreted to mean that a trust can take a
DNI deduction for distributions to charity that do not qualify for the charitable deduction, the IRS
has not interpreted it that way. See Rev. Rul. 68-667, 1968-2 C.B. 289. The courts have supported
the IRS; see Blattmachr , § 3:2.1[J], Note 174; Ferguson/Freeman/Ascher § 6.10, in which the
authors argue that the IRS regulation may be invalid, as the potential abuse it sought to prevent
has been obviated by the statutory change that made the separate share rule (see
applicable to estates as well as to trusts; and Zaritsky, ¶ 2.04[6]. Accordingly, if the distribution to
charity does not qualify for the charitable deduction unde it will not be deductible at all.
A distribution to a charitable remainder trust is eligible for the DNI deduction,
to the extent it meets the other requirements of that deduction. Reg.
Addition of the 3.8 percent NIIT on the trust’s undistributed net investment income (see
discussion in previous section) adds a further complication. Unlike individuals, trusts and estates
do get to reduce their taxable “undistributed NII” by amounts of NII distributed to charity. The
distribution must qualify for the fiduciary charitable deduction under (see next section. If
the trust or estate has both NII and excluded income, the deduction must be allocated between
them “as if” NII were gross income and excluded income constituted amounts not includible in
gross income (see F)). Reg.
7.4.03 Charitable deduction under § 642(c)
Since a distribution to a charity is not eligible for the DNI deduction , a
distribution to a charity from an estate or trust is deductible, if at all, only as a charitable deduction
under allows an estate or trust “a deduction in computing its taxable
income…[for] any amount of the gross income, without limitation, which pursuant to the terms of
the governing instrument is, during the taxable year, paid for a” charitable purpose (as defined in
.
A distribution from an estate or trust to a Charitable Remainder Trust is not eligible for the
income tax charitable deduction; it is deductible, if at all, only as DNI . Reg.
A. Introduction to § 642(c): the fiduciary charitable deduction. Like an individual
taxpayer, a trust is entitled to an income tax deduction for certain payments to charity.
However, there are many differences between the individual income tax charitable
deduction unde nd the fiduciary income tax deduction unde for example,