What is the name of your state?What is the name of your state? The will is operating under Colorado probate but I live in North Carolina.
I am in the final stages of probating my sister's estate. Two questions have arrisen that I am getting differing opinions on.
1. 50% of her residuary estate goes to charity, and she has substantial IRD income from cashing out 401 K and IRA's that went to the estate. Her will invokes the Colorado fiduciary powers act, which allows the executor to do non-prorata distributions. I would have been allowed to exclude the IRD income from the fiduciary return (according to a recent PLR 200520004) if the charities had been assigned the 401 K, but the plan did not allow me to do that. To accomplish the same thing, I would like to allocate the pre-tax money to the charities and take a full charitable deduction on the 1041. Do you have any advice on this?
2. The 1041 will be a final return and the income can be pushed out to beneficiaries or paid by the estate. Since the charities are tax exempt, if the tax consequence are passed on to the beneficiaries, the non-charity beneficiaries will be paying essentially all the taxes on the pretax money from their distributions. Would it be better to have the estate pay the taxes (at a higher rate) which would allow the charitable beneficiaries to share in the tax burden? Do you have any advice on this?
Thanks for any assistance you can offer.