Income Tax Considerations in Charitable Bequests

It’s important, from a tax standpoint, for a client’s will to make specific bequests of items of IRD to charity, or to have IRD assets pass to charity as a residuary bequest.  Alternatively, a client can change the death beneficiary of an IRA or other qualified retirement plan to a charity.  Satisfying a pecuniary bequest to charity out of IRD items will generate an estate tax charitable deduction, but the estate will have to include the IRD in income [Reg. §1.691(a)-4(a)].  Examples of IRD items include:

  • Interest on U.S. savings bonds
  • Accounts receivable of a cash-basis taxpayer
  • Renewal commissions of insurance agents
  • Deferred compensation, last salary check, bonuses and stock options
  • Accrued royalties under a patent license
  • A deceased partner’s distributive share of partnership income up to the date of death
  • Payments on installment obligations
  • Death benefits from annuities, IRAs and other retirement savings plans

Property passing to charity from a decedent generally will qualify for the federal estate tax charitable deduction [Code §2055(a)].  For federal estate tax purposes, the transfer must be to an organization described in Code §2055(a) and the property must (1) be included in the decedent’s gross estate and (2) be considered “transferred by the decedent.”


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