Life and Death Planning for Retirement Benefits

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Chapter 7: Charitable Giving 357
the fiduciary income tax charitable deduction is unlimited in amount. Also, none of the
requirements discussed in sections B–F below that apply to the fiduciary income tax
charitable deduction apply to the individual version. For discussion of all the differences
between the individual and the fiduciary income tax charitable deductions, see
Ferguson/Freeman/Ascher § 6.01 or Zaritsky ¶ 2.04[1].)
Suppose a trustee receives a $10,000 distribution from an IRA that is payable to the trust,
and then distributes $10,000 from the trust to a charity. To determine whether the trust can take a
charitable deduction for the $10,000 payment to the charity, the trustee must answer the following
five questions:
First, the trustee must determine whether the “separate share” rule applies, and if so what
its effect is. If the separate share rule applies, the trustee may not be entitled to allocate all the
gross income resulting from the retirement plan distribution to the charity’s share—even if he paid
the entire plan distribution to that charity. See and
Second, there is the matter of timing. In what taxable year was the plan distribution
received by the trust, and in what taxable year did the trust make a distribution out to the charity?
There is some limited flexibility regarding the year in which the deduction can be taken relative to
these two events; see
Third, was the payment to the charity made “pursuant to the governing instrument?” See
“B.” If it was not, there is no deduction. If the answer is yes, then:
Fourth, was the payment paid out of “income?” See “C,” “D,” and “E.” If not, there is no
deduction. If the answer is yes, then:
Finally, out of what class of income was the payment made? The deduction will be
allowable to the extent the payment was made out of gross income that is neither tax-exempt
income nor unrelated business taxable income (UBTI). See “F,” “G,” and
As this list of requirements shows, taking a charitable deduction for a retirement plan
distribution that is paid to a charity through a trust or estate is not a simple matter. A trustee can
sometimes avoid having to meet all these technical requirements by transferring the retirement
plan account, itself, intact, to the charity, rather than taking a distribution from the plan and then
paying funds to the charity; see
B. “Pursuant to the governing instrument.” A trust is entitled to an income tax deduction
for amounts that are paid to charity out of its gross income “pursuant to the governing
instrument.”
A treatise could be written about the meaning of the phrase “pursuant to the governing
instrument,” starting with the question of which document is “the governing instrument.” For
example, if a trust instrument grants a beneficiary a testamentary power of appointment, and the
beneficiary appoints the property to charity, the beneficiary’s will exercising the power is not “the
governing instrument,” according to Brownstone v. U.S., 465 F. 3rd 525 (2d Cir. 2006), which
disallowed the charitable deduction in these circumstances.
In CCA 2008-48020, a trust (of which the only asset was an IRA payable to the trust as
beneficiary) provided for ongoing distributions to individuals and charities. The trust was reformed