Gifts through stockbroker are included in donor's estate.

• Author: Barton, Peter C.

In Est. of Cummins, TC Memo 1993-518, the Tax Court ruled that 20 $10,000 gifts made through a taxpayer's stockbroker were not complete when the taxpayer died before the stockbroker issued the checks--even though the taxpayer had given him irrevocable written instructions to make the gifts. Therefore, the $200,000 was included in the taxpayer's gross estate.

Sec. 2503(b) excludes the first $10,000 of gifts of present interests per calendar year to any donee from gift tax. However, these gifts must be completed gifts in the particular calendar year, as determined by state law. Required for completeness in most states (including Oregon, the state of Cummins, residence) are the intent to make a gift, delivery to the donee and aeceptance. Delivery requires the transfer of possession and control such that the donor relinquishes the power to revoke the gift.

On Oct. 4, 1988, Cummins wrote a letter to his stockbroker at Shearson. Referring to a discussion they had had a month earlier, the letter stated: " . . . you are hereby given the irrevocable instruction to pay the sum of $10,000 each, in cash, to the following named individuals . . . ." (Emphasis in original.) The letter also instructed Shcarson to liquidate a sufficient amount of securities to accomplish this. It concluded that the gifts would be "complete and irrevocable" when he signed the letter. Cummins, attorney immediately delivered the signed letter to Shearson, which accepted its terms. Later that day Cummins died. Following the sale of Cummins, securities on October 5, Shearson reduced Cummins, account by $200,000 and issucd checks to the donees on October 6 drawn on Shearson's account.

The Tax Court found the intent and acceptancc rcquirements for a completed gift to be present, with the only issue being whether or not delivery was accomplished. The answer to this question depended on whether Shearson was an agent of Cummins or a trustee for the beneficiaries. An agent acts on behalf of a principal, who retains ownership of the assets, while a trustee takes ownership of the assets and acts on behalf of the beneficiaries.

The IRS argued that, since the money was not transferred to the donees until after Cummins, death, the gifts were not complete and therefore were includible in his estate. The estate contended that the irrevocable nature of Cummins, letter to Shearson created a trust relationship, and that the delivery of the letter to Shearson as trustee satisfied the delivery...