In Estate of DeMuth v. Commissioner, T.C. Memo 2022-72 (Aug. 1, 2022), the Tax Court ruled on when checks are considered completed gifts. There, on September 6, 2015, decedent’s son, under power of attorney, wrote 11 checks totaling $464,000 from decedent’s checking account. Decedent died on September 11, 2015. The estate tax return reported the value of decedent’s checking account excluding the value of all 11 checks. However, only one check cleared prior to decedent’s death. Three other checks were deposited to the payees’ respective depository banks on September 11, 2015, but not paid until September 14, 2015.

The Tax Court determined that a check written before death is not considered a completed gift and is includible in the gross estate where the decedent dies before the drawee bank accepts, certifies or makes final payment on the check. The court reasoned that so long as the drawer of the check can make a stop-payment order on the check, the donor has not parted with dominion and control and therefore has not made a completed gift. Accordingly, only the check that cleared the bank prior to death was properly excluded from the gross estate.

In prior Tax Court cases, the court considered whether it could apply a “relation back doctrine” to a check. If the check was paid, the relation back doctrine would deem the gift complete as of the date the check was delivered to the donee; notwithstanding the date the check cleared the bank.

In Estate of Metzger v. Commissioner, 100 T.C. 204 (1993), the Tax Court applied the relation back doctrine. There, checks equal to the annual exclusion were issued to four donees in December 1985, deposited on December 31, 1985, and cleared the bank on January 2, 1986. Checks for the same amount and to the same four people were issued in 1986. The court ruled that the relation back doctrine applied so that the checks deposited on December 31, 1985, were considered completed gifts in 1985 and the donor did not make double annual exclusion gifts in 1986.

In contrast, in Newman v. Commissioner, 111 T.C. 81 (1998), the Tax Court determined that the relation back doctrine did not apply where checks were written, but not cashed prior to donor’s death. Unlike Metzger, the relation back doctrine did not apply because the donor was not alive when the checks were cashed. DeMuth is consistent with the prior cases in not applying the relation back doctrine because the donor died before the checks were cashed.