LAST MINUTE GIFTING BY CHECK

Time is running out for 2012 gift giving. End of year gifting by check is always an issue for those trying to use their annual exclusion amounts, but 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.

The issue with using checks to make gifts 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. Thus, a check written in 2012 that does not clear until 2013 is at risk of being a 2013 gift, not a 2012 gift, since the donor could have stopped payment in 2013 before it cleared.

There is case law on gifts by check, and when they will be treated as complete. The safest course is to deliver the check in 2012, have it deposited by the recipient, and have it clear in 2012.

Failing that, Revenue Ruling 96-56 provides a safe harbor. 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) delivery 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, depositing the check in 2013 will be a problem.

These rules are not the same as for charitable contribution deductions – those rules are more liberal.