Are Charitable Pledges Deductible if Paid After Death?

A charitable pledge by an individual that is satisfied by the executor following death is not deductible as a charitable contribution. However, it will qualify for deductibility as a claim against the individual’s estate if (a) it was a contractual obligation created in good faith for an adequate and full consideration of money or money’s worth or (b) it would have constituted an allowable charitable deduction if it had been a bequest [Reg. §20.2053-5]. Courts have ruled differently on the question based on applicable state law.

The Tax Court denied a deduction for amounts paid by an estate’s personal representative where the court found that the decedent’s promises were unenforceable under state (Florida) law. Jack Levin had publicly promised (followed up by letters) to create a $10,000 unitrust for each of 20 charities but died before funding the trusts. Under a settlement agreement, his estate paid $10,000 cash to 17 of the charities and another $13,575 to the remaining three charities. Under Florida law, the promises were enforceable only if Levin reasonably expected the charities to act or forbear from some action of a substantial character as a result of his promises. Lacking such evidence, the court said the promises were not enforceable and therefore not deductible as a claim under Code §2053(a)(3) [Est. of Levin v. Comm’r., 69 TCM No. 81].

An estate was required to satisfy a $150,000 pledge to Drexel University. The decedent, Raymond Wirth, signed an agreement indicating his intent to be “legally bound” to pay the pledge to establish a scholarship in his name. Wirth died before making the initial $50,000 transfer. The estate argued it did not have to satisfy the pledge, relying on Pennsylvania law, which holds that a charitable promise to pay money in the future is not enforceable unless there is consideration—some type of detrimental reliance by the charity or the existence of other donors who were induced to donated based on the promise. The Surrogate’s Court agreed. On appeal, however, the court relied upon another provision in state law that states that a signed written promise shall not be unenforceable for lack of consideration if the writing contains an additional express statement that the signer intends to be legally bound. Finding that, the court granted Drexel a summary judgment [Matter of Wirth, 2005 NY SlipOp 00274]. This state court decision dealt only with the enforceability of the pledge, but presumably because it was determined to be valid, the estate would be entitled to a deduction for a claim against the estate.

The donor can avoid any question of payment of a pledge—and the deduction—by specifically providing in a will or living trust that the estate is to satisfy any pledges left outstanding at the donor’s death.

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