Third Circuit Denies a Charitable Deduction for a Split Interest Trust

James V. Roberts (Attorney at Law, Glast, Phillips & Murray P.C.) has recently published his article entitled Split-Interest Trust Results in Denial of Charitable Deduction, RPPT eREPORT (2007).

Here is an abstract of his article:

The Third Circuit recently addressed the issue of a split-interest trust in the case of Edmond C. Galloway v. United States. The decision was handed down on June 21, 2007, and deals with an appeal of a case from federal district court seeking a refund. James Galloway, the decedent, created a trust that, on his death, continued until 2016. There were four beneficiaries of the trust, two of which were charities. The trust contained no provisions for dividing the trust at his death, and, as a result, the payments to the charitable and non-charitable beneficiaries came from the same items of trust corpus.

This whole case turned on the lack of the abusive provisions normally thought to be associated with pre-2055(e) split interest trusts i.e. where a non-charitable beneficiary gets first crack at the trust assets, resulting in little or no assets remaining for the charity, but with the decedent’s estate claiming a charitable deduction for the supposed value of the remainder. The Court recited the history of the spit-interest trust arena leading up to the passage of 2055(e).