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SPECIAL GIFT SITUATIONSyears of death. There are ways to avoid this, such as distributing assets over thelife expectancy of the oldest successor beneficiary. 293 The problem is that naminga charitable organization as a successor beneficiary might eliminate the exceptions.The other beneficiaries might, therefore, have to receive all of the assetsover the five-year period, which could be a shorter period than they want.If a charitable organization will receive some retirement plan assets andindividuals will receive the balance, it may be best to roll over the charity’sassets to a separate individual retirement account so that the effect of naming acharity as a beneficiary will be limited to those assets and will not affect theother assets.There has been a question as to whether a charitable remainder trust fundedwith income in respect of a decedent is to be treated as a “fund trust” under theeconomic benefit doctrine, so that the income beneficiary has income in the yearof deposit. The IRS concluded, however, that neither the estate nor any incomebeneficiary has taxable income in the year IRD assets are deposited into a charitableremainder trust. 294Estate and Income Tax Issues. A specific bequest to a charitable organizationusually qualifies for an estate tax charitable deduction on the estate tax returnbut not an income tax deduction on the estate’s income tax return. To qualify foran income tax charitable deduction, the gift must consist of income, in whichcase the charitable deduction is usually taken only on the income tax return andnot on the estate tax return.EXAMPLE 9.7D’s will provides for a bequest of $500,000 to a charitable organization. Shortly after her death,her estate receives a $400,000 distribution of her account in a company’s profit-sharing plan.Her estate’s tax return will report both the transfer of $400,000 in profit-sharing plan assets andan offsetting $500,000 charitable estate tax deduction. The estate’s income tax return, however,will report only the $400,000 distribution from the profit-sharing plan as income. It will not beentitled to an offsetting income tax charitable deduction, because the charitable gift is deemedto be made from corpus rather than from income.Thus, every individual who plans to make a charitable bequest should havelanguage in his or her will or governing trust instrument that, to the extent possible,every charitable bequest will be made with property that constitutes IRD. Tofacilitate the “tracing” requirement for an estate’s charitable income tax deduction,the representative of the estate should establish a separate checking accountto deposit amounts that are IRD and should make the charitable gifts from thisaccount. 295293 IRC § 401(a)(9)(B)(iii).294 Priv. Ltr. Rul. 9634019.295 The tracing rule is the subject of Reg. § 1.642(c)-3(b). The IRS ruled that proceeds passing from a decedent’sretirement plans to a private foundation give rise to a charitable deduction for the decedent’s estate and thatthese proceeds constitute IRD to the foundation. Priv. Ltr. Rul. 9818009. (These proceeds, however, are not aform of income that is subject to the private foundation excise tax on net investment income. IRC § 4940; Priv.Ltr. Rul. 9838028.) 306