Advanced Underwriting Consultants

Question of the Day – April 19

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: My client has named a charity the beneficiary of a $100,000 life insurance policy.  At his death, will the executor be able to claim a charitable income tax deduction on the client’s last return or on the estate income tax return?

Answer: Probably not.

Since the charitable bequest is satisfied AFTER death, there’s no deduction on the final return.  Here’s an excerpt from IRS Publication 559:

Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent’s final income tax return. Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death.

The estate’s income tax return is done on Form 1041.  The IRS requires that, in order for any charitable bequest to generate an estate income tax deduction, that the decedent’s will direct that the bequest come from the estate’s taxable income.  Under the facts described above, the bequest is by beneficiary designation, and it’s from tax-free life insurance proceeds.  As a result, there should be no estate income tax deduction for the charitable gift.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.