Charita ble Intent PLANNING NEWS AND IDEAS …

1 VERLY GENEROUS PAYOUTDOOMS UNITRUSTSC alifornia requires charities to be registeredwith the state s Registry of charitable Trusts in orderto solicit deductible contributions. Organizationsmust file annual reports that include IRS Form 990 Schedule B, giving the names of significant donors those contributing more than $5,000 in a single Center for Competitive Politics (CCP) had, forseveral years, redacted the names of donors from itsForm 990. CCP s mission is to promote and defendthe First Amendment rights of free political speech,assembly, association and petition. CCP challengedthe attorney general s right to donors names, claimingit violated the organization s and the donors right offree attorney general s office noted that althoughthe Form 990 is publicly available, the Schedule B isaccessible only to staff.

2 The information is necessary,said the attorney general, to determine if a charity isactually engaged in a charitable purpose and toidentify suspicious behavior. The District Courtagreed, denying CCP s motion for a Duke s holographic will providedthat at his death his wife was to receive his entire estate;if the couple died at the same time, the estate was to bedivided into two equal shares for named charities inmemory of family members. Duke s wife, who was 14years younger, died before him. At Duke s death in2007, two nephews claimed they were entitled to theestate under California intestacy law, since the will didnot provide for a distribution in the event Duke was thesurviving estate sought to introduce extrinsic evidence ofDuke s Intent , but the probate court declined, finding noambiguity in the will.

3 Summary judgment was enteredfor the nephews. The Court of Appeals affirmed, basedon the 1965 California Supreme Court ruling in Estate ofBarnes(63 580), where extrinsic evidence was notallowed for an unambiguous reviewing Duke s will, the Supreme Court saidthat the categorical bar on reformation of unambiguouswills is not justified, adding that reformation ispermissible if clear and convincing evidence establishesan error in the expression of the testator s Intent . Thecourt noted the evolution of the law of probate, concluding that the bar on reformation of wills is notjustified. Allowing extrinsic evidence to establish amistake in the will helps ensure that the testator s affairsare settled as intended, and prevents unjustly enriching those who would inherit as a result of a mistake.

4 Thecase was remanded for consideration of extrinsicevidence. Estate of Duke v. Jewish National Fund etal., S199435 OURT REVERSES 50-YEAR-OLD PRECEDENTcArthur Schaefer established two net-incomecharitable remainder unitrusts, naming himself and oneof his two sons as income beneficiaries of each. Thetrusts paid 11% and 10% respectively. When Schaeferdied one year later, his estate did not claim a charitablededuction for any portion of the trusts, but it did reducethe amount reported on Schedule G, Transfers DuringDecedent s Life, by the charitable H E S A L V A T I O N A R M YCharitable IntentWINTER2015 2016P L A N N I N G N E W S A N D I D E A S F O R T H E P R O F E S S I O N A L A D V I S E RoThe IRS audited the return and said the estate wasnot allowed a charitable deduction because at the timethe trusts were created, they did not meet the 10%remainder requirement of Code 664(d)(2)(D).

5 The estate argued that the trusts were unlikely to payout the 11% or 10% amounts, and that so long as the 7520 rate was above 5%, that was to be used to valuethe remainder. The rate for the month the trusts werecreated was The Tax Court noted that of the two approaches, theestate s was possibly closer to the amount charitywould receive. However, a Senate report from the TaxReform Act of 1969 indicated that the remainder is to becomputed as if the beneficiary will receive the higherofthe minimum 5% of net fair market value or thepercentage provided in the trust instrument. Therefore,ruled the court, the stated percentage is to be used, eventhough distributions may be limited by net of Schaefer v.

6 Commissioner, 145 No. 4 HARITY CAN T AVOID DONORDISCLOSURE RULEcThe Court of Appeals (9th Cir.) said CCP failedto show that their significant donors would experiencethreats, harassment, or other potentially chillingconduct from the disclosure. CCP s arguments thatthe attorney general s system for preservingconfidentiality was not secure or that donors namesmight inadvertently be accessed or released were speculative, said the court. CCP argued that theattorney general has the power to require disclosure onlythrough a subpoena. The appeals court disagreed,finding that having immediate access to Form 990increases the attorney general s investigative efficiency. The disclosure requirement bears a substantial relationto a sufficiently important government interest, thecourt concluded.

7 Center for Competitive Politics , 2015-1 USTC 50,295 Most charitable donors think only in terms of the obvious cash or appreciated stock when they fundcharitable remainder trusts. But those aren t the only assets that should be considered. Vacation property orraw land the client is ready to sell, collections (stamps, coins, etc.), antiques, even farm machinery and cattlehave been used to fund remainder trusts. Special rules apply to some of these non-traditional assets, butdonors may find advantages to selling and reinvesting within a charitable remainder trust including thegreatest advantage: satisfying philanthropic goals. Our gift planners would be happy to discuss the taxaspects of any assets.

8 Please feel free to call POTPOURRIand the possibility that the deducted amount would notpass to charity was not so remote as to be negligible[Reg. (c)-2(a)(1)].The Tax Court found that during 2010, the estatewas in the midst of a legal controversy that was notresolved by the time the tax return was filed. It was notknown how long it would take to validate the will, reacha settlement or complete probate. The possibility thatthe amount set aside for charity would go tononcharitable beneficiaries was not so remote as to benegligible, said the court. Estate of DiMarco , Memo. 2015-184 The residue of John DiMarco s estate wasleft to the church he regularly attended and his executorwas to be the pastor of that church.

9 Because DiMarcohad been attending two churches, the two pastors agreedto serve as co-executors and split the residue betweentheir respective churches. Shortly after DiMarco died in December 2008,several cousins sought legal counsel regarding the the next few years, the estate tried to locate otherpotential relatives and began negotiations for asettlement. In April 2012, the estate filed an untimelyForm 1041 for the 2010 tax year, on which it reportedincome of $335,854 and claimed a charitable deductionof $314,942 for amounts permanently set aside forcharitable purposes [Code 642(c)(2)]. At about thesame time, the parties reached a settlement under whichDiMarco s relatives would receive one-third of the grossprobate estate, with the two churches each receivingone-third.

10 Each third was worth about $173,250. Asecond settlement agreement, reached in December2012, resolved the issues of the executors commissionsand legal fees. The IRS disallowed the charitable deduction, sayingthe funds were not permanently set aside for charity NCERTAINTY RESULTS INLOSS OF DEDUCTIONuRonnie and Reba Wade were conservatorsfor their grandson Cody, who was left permanentlyphysically and mentally disabled due to medicalmalpractice following an auto accident shortly before heturned age 18. In 2014, after the medical malpracticeaction was settled, the Wades sought to establish asupplemental needs trust (SNT). The trust wouldprovide that, upon Cody s death, trust assets would beused to pay any taxes and to reimburse state agencies foramounts paid on Cody s behalf.