In Estate of DeMuth v. Commissioner, T.C. Memo. 2022-72 (July 12, 2022), the Tax Court held that checks deposited on a decedent’s date of death, but not paid until three days later, weren’t completed gifts.
Five days prior to the decedent’s death, his son, acting under a power of attorney, wrote 11 checks from the decedent’s investment account. One check was deposited and cleared. Three checks were deposited by the payees on the decedent’s date of death but not paid until three days later. The remaining seven checks were deposited and cleared after the date of death.
The court first considered whether the checks at issue represent completed gifts. In accordance with IRC Section 2033 and corresponding Treasury Regulations Section 20.2031-5, the value of any check written by a decedent that still belongs to them at their death is includible in their gross estate. However, once a decedent makes a completed gift of that check, the value is excludible from the gross estate. State law (Pennsylvania) governed whether a completed gift is made.
In the instant case, although three of the payees deposited their checks prior to the decedent’s death, the decedent’s bank didn’t accept, certify or make final payment on the checks until after the decedent’s death. During this time, a stop order could theoretically have been placed on those checks. Under Pennsylvania law, the court determined that because the decedent retained the power to stop payment on the checks prior to his death, the gifts weren’t completed and should be included in the estate.
