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Dec 2012
01
December 01, 2012

Estate Planning Tip: Year End Gifting by Check


Time is nearly up for 2012 gift giving. End of year gifting by check has always been an issue for those trying to use their annual exclusion amounts.  In 2012, the issue also relates to those attempting to make larger gifts to use their unified credit amounts before the scheduled reduction of the unified credit in 2013. It would be a planning disaster if a donor made a large gift by check that he or she thinks is covered by the unified credit in 2012, only to have it taxed as 2013 gift and subject to a substantial gift tax.

When using checks to make gifts, the issue is that until the check clears the bank, the donor can revoke the gift by issuing a stop payment or by removing adequate funds from the bank account. A gift that can be revoked is not complete until revocability ends.  If the ability to revoke did not end until 2013, the donor risks having a 2012 gift treated as a 2013 gift.

Thankfully, the IRS has issued a revenue ruling that provides a safe harbor for gifts by check.  (Revenue Ruling 96-56).  Under that ruling a gift by check delivered in 2012 will be a gift as of the date the check is deposited or presented for payment if:
  1. the check was paid by the drawee bank when first presented to the drawee bank for payment;
  2. the donor was alive when the check was paid by the drawee bank;
  3. the donor intended to make a gift;
  4. delivey of the check by the donor was unconditional; and
  5. the check was deposited, cashed, or presented in 2012 and within a reasonable time of issuance.
Thus, to assure a 2012 gift is treated as a 2012 gift, the donor needs to (a) deliver the check to the donee in 2012 (with adequate funds in the bank for it to clear), (b) assure the donee deposits it in 2012 and within a reasonable time of issuance, and (c) not die until after the check clears.

 

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