Setting up a charity and making a donation is a common technique to reduce estate taxes while providing a charitable legacy to the donor. But sometimes an estate will try to have it’s cake and eat it too when it comes to these deductions. One estate set up a charity with a very specific focus, educating Hungarian immigrants in performing arts, and was approved for tax-exempt status by the IRS. A large donation was then made, and deducted, but the charity had an unfortunate tendency to only award scholarships to relations of the donor. When this fact came to light, the estate was brought to court and lost when a U.S. District Judge wrote a scathing ruling on the blatant deception that was practiced. This case goes to show that estate planners cannot get away with everything while seeking tax deductions and should always make sure a strategy does not have a high chance to backfire.
See Ben Steverman, The Estate Tax Dodge That Went Too Far, Bloomberg, July 8, 2015.
Special thanks to Jim Hillhouse for bringing this article to my attention.
