Ask the taxgirl: Charitable Donations and Estates

Taxpayer asks:

Can you tell me what the tax implications are for donating inherited items? My mother passed away about a year ago and I’m the executor of the estate. Now, my siblings are interested in taking deductions for items they feel they “inherited,” yet were actually immediately donated to charity without my siblings ever having taken actual possession of the items. Is this legal? No documentation exists showing a transfer of the property to the beneficiaries so it could be argued that the items were actually donated by the Estate.

Taxgirl says:

I can’t tell you how many times this comes up in an estate…

Here’s the unhappy rule: if a charitable donation is not specifically authorized in a will or trust, the estate may not properly take a deduction for the donation. In other words, even if Grandma would have wanted to give $10,000 to the SPCA, if it’s not in her will, it’s not a proper charitable deduction. The same rules apply for donations in kind (meaning things or possession) as for cash.

So the estate can’t take a deduction for the transfers to charity by the beneficiaries – even if they meant well.

However, there is some light at the end of the tunnel. Individuals may properly donate items which pass to them from an estate and claim a charitable deduction on their personal return. So what I often advise an executor to do is value items which pass to beneficiaries and treat those items as part of the bequest to those beneficiaries (i.e. your brother takes a clock worth $100, that counts as $100 towards his overall bequest). If the beneficiaries wish to then make a charitable donation, then they’re more than welcome to do so.

It sounds like things happened a little backwards here in that folks just took things from the estate and donated them to charity without documentation – or perhaps permission. You’ll want to value those distributions – if for no other reason, than to keep your estate accounting clean (and thus, keep everyone from fighting at the end). I highly recommend checking with a tax pro in this instance (preferably an estates attorney) to help you sort this out. Speaking from experience, if things are even a little dicey in the beginning, it rarely gets better without help.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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