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Making A Family Gift? New Estate Rules to Know

Posted by Tammie Yearwood on Tue, Sep 6, 2022

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High angle portrait of an extended family lying in circle at the parkWith holidays and end of year tax planning, the time around the new year is pretty popular for financial gifts.

There’s a recent tax court ruling that emphasizes the timing of the gift and when it is considered to be a completed gift; specifically when gifts are made by checks at the end of the year. The court recently ruled that gifts don’t count if the checks aren’t cashed.

Here’s the case:

In 2007, Pennsylvania resident William DeMuth executed a Power of Attorney appointing his son, Donald DeMuth, as his agent. From 2007 through 2014, Donald gave annual gifts to his brothers and other family members.

Prior to William DeMuth's death, 11 gift checks were written on an investment account. Prior to his death, one check was deposited and paid; three checks were deposited and unpaid; and seven of the 11 checks were deposited subsequent to death.

Donald DeMuth excluded the total of the 11 checks from the estate return. The IRS issued a notice of deficiency for the value of the 10 checks that were not paid until after William DeMuth’s death. The tax court held that gift checks written before death but not paid after death were includible in the gross estate.

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This tax court ruling establishes that gifts need to “clear” the doner’s bank account to be considered a completed gift.

This is especially important when gifts are made at the end of December. Such gifts need to “clear” the donor’s bank account on or before Dec. 31 to be treated as a gift for that year.

The annual gift tax exclusion is $16,000 for 2022. The annual exclusion is the maximum amount a person can gift annually to an individual without reducing their lifetime exemption. If you are married, you can “split” gifts with your spouse, essentially doubling the annual exclusion amount to an individual. In most cases, an annual exclusion gift will not require the filing of a gift tax return.

Please contact our Estates and Trusts team with any questions on this or other estate matters.

Topics: Estate and Trust Services

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This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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