The Second Circuit recently upheld a district court's ruling that personal checks that were written and delivered to their recipients before the donor's death were not completed gifts and must be included in the decedent's estate because they were not cashed until after the time of death.

Shortly before her death, Mary Rosano wrote a series of $10,000 checks to various friends and family members in an attempt to decrease the amount of her taxable estate. The executor did not include the amounts of the checks in the estate tax return, and the IRS, after conducting an audit, determined a deficiency of $200,948.57 and imposed penalties of $35,349 and interest of $63,702.30.

In general, any gift of $10,000 or less that is "completed" before the decedent's death will not be included in his or her taxable estate. A gift is considered to be completed for gift and estate tax purposes when the donor has parted completely with "dominion and control" over it. In this case, when Rosano died, she still had the power to cancel payment on the checks, so they could not be considered completed gifts.

The estate argued that the "relation-back doctrine" should apply. Under the relation-back doctrine, checks delivered to donee charities prior to a decedent's death but not paid until after the decedent's death may be considered completed on the date of delivery. This doctrine has been applied to non-charitable gifts, but only in cases where its application would affect the year in which the gift was completed. In all such cases, the checks were cashed and completed before the decedent's death. In cases where the non-charitable checks were cashed after the decedent's death, as in this case, the courts continue to refuse to apply the relation-back doctrine.