commissioner

Avoiding Gift Tax – Make Sure The Checks Clear!

Recently, I discussed the issues surrounding the estate of Aretha Franklin. From the sources that I reviewed, it appears that she did not intentionally reduce the size of her estate through gifting to her heirs before her death. It isn’t required that people reduce their estates through giving, however. . . With an annual ceiling of $15,000, affluent individuals of advanced age may prefer to distribute a portion of some inheritances before their death, to avoid taxes to both themselves as well as the recipients.

For those that choose to give before death, whatever you do, make sure your heirs cash those checks as soon as they receive them! A recent tax case (Estate of de Muth v Commissioner) determined that if a check isn’t cleared before a person dies, the checks become part of the estate, and therefore subject to estate tax. Of course, gifters can’t force recipients to quickly cash checks given to them, but if the intent is to ensure that the size of the estate is reduced, then time is truly of the essence.

I was interested in Estate of de Muth because it was always my understanding that it was the date of gifting, and not the date of cashing, that determined when a gift was given. But with the tax courts determining that the act of gift giving occurs upon cashing the check, I now have a different perspective regarding gifts and what constitutes receipt. This is why I love staying aware of the changes with the tax law: you never know what you’ll learn!