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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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My brother and sister and I are equal beneficiaries of my mothers

Customer Question

My brother and sister and I are equal beneficiaries of my mother's trust. My siblings disagreed with the way I handled her trust after Mother's death. We settled on the court house steps and all agreed to donate the sum of money in dispute to a charity. If the trust issues the check directly to the church, will we individually be able to deduct our portion as a charitable deduction on our taxes?
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

Dear Ranger,

 

what kind of trust is this.

 

Clue: Most people have revocable trusts and then after they pass away,the trust becomes irrevocable.

 

However there are other forms of trusts.

 

 

Customer: replied 5 years ago.
It was a revocable trust before Mom's death. I am the successor trustee. The agreement was that the charitable gift be made but everybody gets their 1/3 share of the charitable deduction. The trust needs to issue the check to the charity to ensure the gift is made.
Expert:  Ed Johnson replied 5 years ago.

Is this trust irrevocable now?

 

AND I udnerstand that you have an agreement, but do the trust documents contain language pertaining to this.

 

The handling of this will vary depending on if the trust is now irrevocable or not.

 

 

Customer: replied 5 years ago.
The trust is now irrevocable.

No, the trust itself did not designate this gift. This gift was an agreement of the beneficiaries in order to settle a dispute regarding the distribution of assets in the trust.
Expert:  Ed Johnson replied 5 years ago.

Ranger,

 

Thanks.

 

One final question. Is this the closing activity of the trust. Will this be the final 1041 for the trust or will the trust continue to operate distributing to beneficiaries?

Customer: replied 5 years ago.
Yes, the closing activity. The trust is all in cash at this point. It's just a matter of issuing the checks.
Expert:  Ed Johnson replied 5 years ago.

Dear Ranger,

 

Thanks.

 

 

My attempt was to find some way you could do this. However you will not be able to do it the way you suggest.

 

If the trust issues the check to a charitable organization, then the trust technically includes this on the form 1041 and changes the distributable income. (it is reduced).

 

I understand what you are trying to do.

 

Why not try this solution.

 

Since you all agreed to how the distributions to beneficiaries was to be handled, but minus the charitable contribution, you main concern seems to be that everyone fulfills their obligation.

 

Why not have the distribution to beneficiaries be made without regard to the charity, and to have the distributions go to an escrow account. The administrator of the escrow account can distribute the monies according to the agreement you have.

 

Under IRS ordering rules and accounting rules, the money is available legally to each of you when it goes to the escrow, because it is constructively received.

 

Then each person gets their distributions minus the amount that goes to a charity. The donation is made in their name. Think of it in the same way one might for a closing on a home.

 

in that way each person can take the charitable donations.

 

 

Customer: replied 5 years ago.
The agreement was made between the beneficiaries as a settlement. The reality is that two of the three parties would rather not make the donation to charity at this point, even though they agreed to this in the settlement. If the funds are placed into escrow wouldn't they still be able to direct escrow to issue a check directly to them.
Expert:  Ed Johnson replied 5 years ago.

You have essentially a partnership agreement.

 

Draw up a formal document that each of them signs. The escrow, like a trust can have terms assigned to it before money is released.

 

Make the donation or allow the administrator to pay it out according to the terms.

 

In order to get the donation on your tax return, you need to pass this money into your possession first. You have to receive it. If the trust makes the donation, as an irrevocable trust, the trust subtracts it from income.

 

altgernatively you can get the probate involved. If tow of hte three parties do not want to make the donation, there is contestibility at probate.

 

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 6 other Tax Specialists are ready to help you
Customer: replied 5 years ago.
Thanks very much for your time and effort.
Expert:  Ed Johnson replied 5 years ago.

Dear Ranger,

 

best of luck to you in this. I woudl like to know how you finally resolve this later.

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