Building Legacies that Last Estate Planning and Elder Law

Charitable Trust Deductions

man holding a lot of coins in his handsLike individuals, trusts have to pay tax on any trust income. Also, like individuals, trusts can take income tax deductions for donations to charity as long as the trust is set up properly.

No one really likes paying income taxes. Almost everyone will seek to pay as little as they possibly can. That holds true for trusts that are required to pay federal income tax on any income from trust assets.

One way to lower the amount of taxes that have to be paid is to donate money to charity and take a charitable donation. Trusts can do that just as individuals can.

However, a recent tax court case contains a warning for trusts as Wealth Management discusses in “Tax Court Disallows Trust’s Charitable Deduction for Want of Charitable Intent.”

For years the trust in question had made annual distributions to beneficiaries as required. The trust administrators also set aside funds for charity so they could use that money to take charitable deductions on the trust’s taxes.

However, when the IRS audited the trust, it balked at the deductions.

The tax court agreed with the IRS.

The issue was that the trust documents contained no language of charitable intent. The court refused to read such an intent into the trust.

What does this mean? If you would like your trust to be able to use charitable deductions to offset trust income, then it needs to be clear in the trust documents that the trust has a charitable purpose in part.  If you want to set up a trust that can make charitable deductions, contact Profit Law Firm.  Schedule a consultation with us.

Reference: Wealth Management (Nov. 7, 2016) “Tax Court Disallows Trust’s Charitable Deduction for Want of Charitable Intent.”


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