Gifts made under power of attorney were valid.A common estate planning technique is to make yearly gifts to take advantage of the $10,000-per-year, per-donee donee n. a person or entity receiving an outright gift or donation. gift tax exclusion. In two recent cases involving powers of attorney, what the parties thought were completed gifts ended up in court. The first case involved a father who gave his son a power of attorney authorizing him to make gifts of the father's property to various heirs (see JofA, Dec. 94, page 30). Gifts of $10,000 each were made under the power of attorney Power of Attorney A legal document giving one person (called an "agent" or "attorney-in-fact") the power to act for another person (the principal). The agent can have broad legal authority or limited authority to make legal decisions about the principal's property and finance. The power of attorney is frequently used in the event of a principal's illness or disability, or when the principal can't be present to sign necessary legal documents for financial in two succeeding years. Because the first year's gift checks were cashed close to year-end, they did not clear until the next year, leading to a dispute with the Internal Revenue Service about the year in which the gifts were completed--and whether they were covered by the $10,000 exclusion. The taxpayer won that dispute. See Metzger Est. (4th Cir., 1994). In a second case, Joseph Ridenour gave his son James power of attorney to be used if Joseph became incapacitated. The power listed specific acts James could perform and contained a general grant of authority to perform "all and every act." The power to make gifts was not specifically listed. Joseph was in the habit of making $10,000 yearly gifts to his heirs. After he became incapacitated, his son wrote checks on the father's account for amounts under $10,000 to himself and others. In a later estate tax dispute following Joseph's death, the IRS added the gifts made under the power back into the estate, claiming that under Virginia law the gifts were revocable transfers--incomplete gifts--since the power to make a gift had not been specifically stated in the power of attorney document. The Tax Court, interpreting Virginia law, said the gifts were irrevocable and should not have been included in Joseph's gross estate. The Court of Appeals for the Fourth Circuit upheld the Tax Court decision. Note: Had the power to make gifts been specifically stated in the power of attorney, the litigation could have been avoided. * Ridenour Est. (4th Cir., 1994). |
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