In this complex case decided by the United States Tax Court, a woman left her entire estate to her only daughter. The daughter disclaimed (renounced) a portion of the estate assets. The will provided that any disclaimed assets would pass in part to a charitable foundation and in part to a charitable trust that would pay an annuity to the foundation for twenty years, after which time the assets remaining in the trust would pass to the daughter (known as a contingent remainder, because she would get the remaining assets if there were any left after the twenty-year annuity period had passed).

The daughter disclaimed only the assets that went to the foundation and the trust annuity; she did not disclaim the contingent remainder in the property passing to the trust. On the estate’s tax return, it deducted as charitable contributions the disclaimed property passing to the foundation as well as the present value of the annuity interest passing to the charitable trust. The Tax Court held1 that the estate could deduct the entire value of the property passing to the foundation because that was an effective “qualified partial disclaimer” in conformity with the provisions of Internal Revenue Code Section 2518.

The court also agreed that the charitable deduction could encompass a higher valuation than was first reported on the estate tax return, because the parties agreed that the value of the property had increased substantially since the date of the mother’s death. However, the court allowed no deduction for property passing to the trust, because the partial disclaimer of that property was not effective, since the daughter disclaimed only the annuity portion and not the contingent remainder portion.