Checks Cashed After Death Are Part of Estate

The United States Court of Appeals for the Third Circuit holds that checks cashed after the decedent’s death are still part of the taxable estate. In Estate of Demuth v. Commissioner of Internal Revenue (3rd Cir. No. 22-3032, July 12, 2023).

Donald DeMuth was the financial agent for his father, William DeMuth, who became terminally ill. Typically, William DeMuth gave monetary gifts in December.

Shortly before his father’s death in September 2015, Donald DeMuth sent or personally delivered 11 checks to family members totaling $464,000 from his father’s investment account. Ten of the checks were paid after Donald DeMuth passed away.

As executor, Donald DeMuth filed an estate tax return in December 2016. Finding that the estate’s tax return should have included the value of the 10 checks, the Internal Revenue Service (IRS) issued a notice of deficiency of $179,130 owed. Following Donald DeMuth’s request that the Tax Court reconsider the decision, the IRS conceded to exclude three of the checks, reducing the total deficiency to $131,774. The tax court held that the seven checks were part of the decedent’s estate because the gifts were incomplete per Pennsylvania law. The estate appealed.

The checks were revocable when the decedent died. After an individual writes a check and gives it to the recipient, the individual may still cancel it. The estate may revoke checks upon the decedent’s death. Since the checks were revocable when the decedent passed, the gifts were incomplete and were still part of the estate.

The executor argues that the decedent made the checks in causa mortis, contemplation of death, making them completed gifts. While gifts made in contemplation of death would not be part of the taxable estate, no evidence suggests the checks were in causa mortis. William DeMuth only instructed his son to make gifts below the threshold for gift tax and to fund family members’ tuition. Nothing suggests that William DeMuth made the gifts in contemplation of his death.

Since the family members cashed the seven remaining checks after William DeMuth’s death and he did not write the checks in anticipation of his death, the estate tax filing should have included the value of the seven remaining checks. The appellate court affirms the tax court’s decision.

Read the full opinion.