Galloway and Disallowance of Charitable Contribution Deduction

Valerie H. Kuntz (Managing Editor of Law Review, Regent University School of Law) has recently published her Note entitled Galloway, Split-Interest Trusts, and Undivided Portions: Does Disallowing the Charitable Contribution Deduction Overstep Legislative Intent?, 20 Regent U. L. Rev. 125 (2007-2008).

Here is the conclusion to her Note:

When individuals make charitable contributions through split-interest trusts, they risk the disallowance of any potential charitable contribution deduction for estate tax purposes. Even where the interest given to the charitable beneficiary represents an undivided portion of the decedent’s interest in trust property–as was the case in Galloway–under the prevailing statutory interpretation of I.R.C. § 2055(e)(2) and Treasury Regulation § 20.2055-2(e), the deduction will be disallowed. This draconian application of Section 2055(e)(2) oversteps the legislative intent behind the enactment of that section. Until a better solution to this conflict between statutory language and intent is reached, whether through case precedent or legislative amendment, the “moral” of Galloway remains that “the drafter who is unsure of the technical [deduction disallowance] rules would be well-advised to seek” legal counsel before trying to make any contribution to charitable beneficiaries out of his or her estate.