Before his mother passed away, Mark used his power of attorney to write gift checks from her checking account to himself, his wife, and some other relatives, hoping to take advantage of the annual $10,000 gift tax exclusion. The checks were not cashed until after his mother's death. Because the power of attorney to him specifically permitted him to use it to make gifts, his actions were permissible under state law. The Internal Revenue Service, however, got the Tax Court to agree that if a check is intended to be a gift to an individual, rather than a charity, the funds which constitute the gift remain the property of the donor estate until the checks are cashed. As a result, the annual gift tax exclusion was not allowed.
The moral of the story is clear. Gifts intended to qualify for the annual exclusion should be made early each year and checks for the gifts should always be cashed immediately.