Bad Drafting and Will Contest Kills Charitable Deduction For Estate.

The decedent died testate in late 2008.  At the time of his death, the decedent was not married, had no children, and both of his parents had predeceased him.  The Form 1041 for the estate was filed in April of 2012 reporting $335,854 of income and claimed a $314,942 charitable deduction.  The IRS disallowed the charitable deduction in its entirety, claiming that the amount had not been permanently set aside for charity as required by I.R.C. §642(c)(2).  The decedent’s will, executed in 1983, instructed the executor to pay all estate expenses and costs from the general estate, and conveyed 100 percent of the residuary estate to the church that the decedent regularly attended.  There was no provision in the will specifically providing for gross income to be permanently set aside or separated into distinct accounts.  Over a timeframe of several years, the estate tried to determine whether there were any unascertained heirs with several being identified as potential heirs.  Ultimately, the will was challenged and a proposed settlement was reached with two thirds of the decedent’s gross probate estate.  The court noted that, to claim a charitable deduction, the estate must show that the contribution was from the estate’s gross income, that the will/trust terms made the charitable contribution, and that the charitable contribution was permanently set aside for charitable purposes in accordance with I.R.C. Sec. 170(c).  The IRS did not challenge the first two requirements, but claimed that the residue of the estate was not permanently set aside for charitable purposes.  The court agreed with the IRS that it had not.  The court noted that the chance the charitable amount was go to non-charitable beneficiaries for the year in issue was not so remote as to be negligible.  The proposed settlement was evidence of the ongoing legal battle that had not yet concluded.  he court noted that for the year in issue the estate was in the midst of a legal battle and had ongoing undetermined expenses, and their remained a possibility that the amount set aside for the churches that the decedent attended would go to the challengers.  Estate of DiMarco v. Comr., T.C. Memo. 2015-184.