IRS Form 6166 (Certification of U.S. Tax Residency)
Tax & AccountingJuly 26, 2022

Decedent’s estate did not include uncashed checks written before death

By: CCH AnswerConnect Editorial

A decedent’s estate did not include the value of some checks that were written before and cashed after his death. 

Several years before his death, the decedent (William) executed a power of attorney that named his son (Donald) as his agent. In accordance with the POA, Donald then made annual gifts to William’s children and other relatives. 

William’s health began to fail a few months before his death. Less than one week before he died, Donald wrote 11 checks from William’s investment account. One check was cashed before his death. Three checks were deposited by the payees on the date of death, presumably before he died, but were not paid until several days later.

As the executor of William’s estate, Donald reported the value of William’s investment account on the estate tax return. However, he excluded the value of all checks written before William’s death.

Uncashed checks generally includible in gross estate

A decedent’s gross estate generally includes the value of an uncashed check unless the decedent executed a completed gift. To determine if a gift was completed, the courts look to applicable state law. In this case, Pennsylvania law states that a gift is made when the donor intends to part with the property, and the property is irrevocably delivered.

Pennsylvania law also gives the drawer of a check the right to stop payment or to close the account by notifying the bank in a way that gives the bank a reasonable opportunity to act. Because William’s drawee bank did not accept, certify, or make final payment on the uncashed checks before his death, a stop-payment order could have been placed on any of those checks.

Therefore, none of the uncashed checks were completed gifts prior to death. As a result, IRC §2033 would ordinarily include the checks in the decedent’s gross estate. But the court’s analysis did not stop there.

Incorrectly used terms caused some checks to be excluded

The problem was that when they discussed the three checks that were cashed on the day William died, both the IRS and the estate misconstrued the terms “drawee bank” and “depositary bank.” These terms are distinct and not interchangeable. 

The parties mistakenly referred to the payees’ depositary banks as drawee banks in the Joint Stipulation of Facts when discussing the three checks that were “deposited and credited” to the payees’ accounts “by their respective drawee banks.” Actually, the payees deposited the checks at their depositary banks.

Both parties also misused the terms in their Simultaneous Opening Briefs. This was critical because the government conceded that the three checks were not includible in the decedent’s gross estate. This concession was likely based upon the mistaken notion that the checks were credited by the “drawee banks” before death.

Although the government did not seek to withdraw its concession, the court concluded that it would not have been allowed to do so because the estate relied upon that concession. In addition, the court could not ignore the government’s concession. As a result, the three checks that were presented to the payees’ depositary banks before death were excluded from William’s gross estate.

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