Contents

ESTATE AND GIFT TAX CONSIDERATIONSappeal the court construed the evidence in a manner showing that the decedent’sintent was to benefit only charitable entities. 193 The appellate court did notaddress a point relied on by the district court, which was that the trust documentfailed to⎯as some courts are requiring⎯restrict the trustees to holding, using,and distributing the trust property exclusively for charitable purposes. 194An estate tax charitable deduction is not available for the bequest to charityof a contingent remainder interest in a farm. 195 Under a will, a decedentbequeathed a farm to a child for life, with the remainder to a charitable organization.The will also provided, however, that if another child survived the firstchild, the remainder interest in the farm would vest in the second child insteadof the charity. Both individuals were 45 years of age as of the death of the decedent.It was this remainder interest that the IRS found to be too contingent tomerit a charitable deduction. The law is that, in the case of a charitable transfersubject to a condition, no deduction is available “unless the possibility that thecharitable transfer will not become effective is so remote as to be negligible.” 196The IRS referred to its position that a charitable deduction is not allowable whenthe probability exceeds 5 percent that a noncharitable beneficiary will survivethe exhaustion of a fund in which the charity has a remainder interest. 197 Underthis rule, any probability in excess of 5 percent that such a contingency willoccur and defeat the charity’s interest is not considered so remote as to be negligible.Because the two children were of equal age, the actuarial possibility thatthe second child would survive the first (and thus divest the charity of itsremainder interest) was 50 percent. Fifty percent being greater than 5 percent,the IRS held that the “possibility that the charitable remainder transfer in thiscase will not take effect in possession and enjoyment is not so remote as to benegligible.” 198 Thus, the IRS concluded that the bequest did not give rise to anestate tax charitable contribution deduction, even though it otherwise compliedwith the requirements.(b) Will ContestsIn 1989, the IRS ruled that, in situations involving settlements of bona fide willcontests, when the will creates a charitable remainder trust, the IRS would nolonger challenge the deductibility of immediate payments to charitable organizationson the ground that they were made as part of a split-interest arrangementthat would not support an allowable estate tax charitable contributiondeduction. 199 In so doing, the IRS revoked its prior contrary position 200 and193 Starkey Estate v. United States, 2000-2 U.S.T.C. 60,381 (7th Cir. 2000), rev’g 58 F. Supp. 2d 939 (S.D. Ind.1999).194 See, e.g., Continental Ill. Nat’l Bank & Trust Co. v. United States, 403 F.2d 721 (Ct. Cl. 1968); Bennett Estatev. Commissioner, 100 T.C. 42 (1993).195 Rev. Rul. 85-23, 1985-1 C.B. 327.196 Reg. § 20.2055-2(b).197 Rev. Rul. 70-452, 1970-2 C.B. 199; Rev. Rul. 77-374, 1977-2 C.B. 329. See § 12.10.198 Rev. Rul. 85-23, 1985-1 C.B. 327, 328.199 Rev. Rul. 89-31, 1989-1 C.B. 277.200 Rev. Rul. 77-491, 1977-2 C.B. 332. 256