It turns out that trusts can behave just like people.
Trusts are very similar to individuals in that they pay taxes and can donate to charity. A recent court case contains a warning 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.
An estate planning attorney can guide you in the use of trusts in an estate plan.
Reference: Wealth Management (Nov. 7, 2016) “Tax Court Disallows Trust’s Charitable Deduction for Want of Charitable Intent.”
