Academic journal article Journal of Accountancy

Incomplete Gifts

Academic journal article Journal of Accountancy

Incomplete Gifts

Article excerpt

Individuals are allowed to give away up to $10,000 in gifts per calendar year tax-free. Under state law, for a gift to be complete there must be (1) a competent donor, (2) a donee capable of receiving and possessing the gifted property, (3) delivery of the property and (4) acceptance of the gift by a donee who has the unrestricted right to the immediate use, possession or enjoyment of the property.

In Estate of Sarah H. Newman v. Commissioner, 111 TC no. 3 (7/28/98), the Tax Court held that gifts made by check and delivered to individual donees before a donor's death but presented for payment after the donor's death were not completed gifts during the donor's lifetime. As a consequence, the gift checks were included in the donor's gross estate.

Sarah Newman died on September 28, 1992. Shortly before her death, her son, as attorney-in-fact, drew six checks totaling $95,000 on her account and delivered them to several individuals, including himself and his wife. None of the checks were accepted or paid by Newman's bank until after her death.

The court was faced with the question of whether the funds in Newman's bank account relating to the six outstanding checks were includible in her gross estate.

The IRS argued that the checks were incomplete lifetime gifts and that the check amounts should be included in Newman's gross estate because she maintained dominion and control over the checking account until her death.

The estate argued that the checks constituted nontaxable completed gifts and should be excluded because the checks were dated before Newman's death. …

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