A gift is only a gift when it is completed, according to the tax code.
In a recent case, an individual signed a power of attorney appointing his son as agent. Over seven years, the son used the power to make year-end annual gifts from the father to family members.
In September of the eighth year, the father was assessed to be terminally ill. The son decided to accelerate the annual gifts and immediately wrote eleven checks from the father to family members totaling almost $500,000. The checks were mailed or personally delivered to the beneficiaries.
The father died within a week after the checks were written. Ten of the checks weren’t cashed or paid to the beneficiaries until after the father passed away.
The IRS determined that the value of those 10 checks should be included in the estate and subject to estate tax.
The Tax Court and a federal appeals court agreed.
A gift isn’t made until it is complete. When a gift is made by check, the gift isn’t completed with delivery of the check. The donor may revoke the gift until the check is deposited or is cashed and clears the bank. The donor can stop payment at any point until then. That’s why the gift isn’t complete until the check has cleared the bank.
(Estate of William E. DeMuth Jr. v. Commissioner, No. 22-3032, 3rd Circuit)