In Estate of Eileen S. Belmont, Deceased, Diane Sater, Executrix, the Tax Court disallowed a charitable set aside deduction under Code Section 642(c)(2).

In the Estate of Belmont, the Decedent’s (“D”) will directed that the residue of her estate, which included income in respect of a decedent, be left to charity. The estate (“E”) took a charitable contribution deduction pursuant to Code Sec. 642(c)(2) on its Federal income tax return, claiming that it had permanently set aside an amount of its gross income for charity.

At the time of her death, D owned a condominium in which her brother (“B”) resided. During the protracted administration of the estate, B took a variety of legal actions and asserted a life tenancy interest in the condominium. B was subsequently awarded a life tenancy in the condominium. Because of the cost of litigation over the condominium, E no longer had sufficient funds to pay the amount previously deducted as a charitable contribution.

Here, the Tax Court’s holding was as follows:

Code Sec. 642(c)(2) provides that any part of the gross income of an estate, which pursuant to the terms of the will is permanently set aside during the taxable year for a purpose specified in I.R.C. sec. 170(c), shall be allowed as a deduction to the estate. Sec. 1.642(c)-2(d), Income Tax Regs., provides that no amount will be considered permanently set aside for charity under I.R.C. sec. 642(c)(2) “unless under the terms of the governing instrument and the circumstances of the particular case the possibility that the amount set aside * * * will not be devoted to such purpose or use is so remote as to be negligible.” The possibility that costs involved in a dispute over the condominium would cause E to invade the amount set aside for charity was not “so remote as to be negligible” as required under sec. 1.642(c)-2(d), Income Tax Regs. Therefore, E did not “permanently set aside” the charitable contribution amount as required under I.R.C. sec. 642(c)(2).

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.