The legal definition of a gift is a definite and voluntary transfer of property from one individual to another individual. The transfer of property must be made without consideration, which is the expectation of receiving compensation in return for the property.
An individual or entity who makes a gift is referred to as a donor. The individual who receives the gift is referred to as the donee.
A transfer that qualifies as a gift is typically exempt from various tax laws. A gift can usually be made to individuals or qualified entities such as a registered charity.
In general, there are three ways gifts may be transferred, including:
An inter vivos gift is a gift that is transferred during the life of the donor or while the donor is still alive. These gifts are irrevocable, meaning that the donor cannot reclaim the gift once it is transferred.
A causa mortis gift is a gift that is transferred in anticipation of the donor’s imminent death. This type of transfer is typically effective upon the death of the donor and may be revoked up until the donor passes away.
A testamentary gift is a personal gift distributed through a will. This type of gift is transferred to a donee following the death of a donor and is often included in the overall distribution of the individual’s estate.
What are Inter Vivos Gifts?
The Latin phrase, “inter vivos” means “between living persons.” Inter vivos gifts are those that are given during the lifetime of the donor.
An inter vivos gift is given while a donor is still alive. These types of gifts, which may include estate property, are typically not subject to probate taxes.
This is because they are not a part of the estate of the donor at the time of the donor’s death. However, it is important to note that a gift which exceeds $15,000 in one given year may be subject to income taxes if the gift is made to a party other than the donor’s spouse or qualified charity.
The actual value of the property which is gifted to the donee is calculated at the time of the transfer of the gift. An inter vivos gift is often included in an estate plan because it avoids probate taxes.
It is important for potential donors to remember, however, as previously noted, that these types of gifts are not revocable. In other words, any attempt to exert control over the gifted property or derive any benefit from the property may result in the gift no longer having tax-exempt status.
A gift tax is a federal tax on gifts which are paid by the individual who gives the gift. These taxes exist to prevent individuals from avoiding estate taxes by giving away all of their property or finds before they pass away.
Gifts which exceed $15,000 in one year are considered taxable gifts. It is important to note that gift taxes are not due until an individual has given away over $11.4 million during their lifetime.
This lifetime gift exemption ensures that most individuals will not be required to pay gift taxes.
What Are Some Advantages Associated with Inter Vivos Gifts?
Many individuals use their inter vivos gifts for estate planning purposes because they allow the donor to distribute a portion of their estate during their lifetime. Instead of giving a gift using a will or a trust, a donor can oversee the process of the distribution of their estate while they are still alive.
This option is an attractive one for individuals who wish to maintain total control over the distribution of their estate and those who wish to be a part of the process instead of leaving it for someone else to handle when they pass away. There are also other advantages to using an inter vivos gift, including:
- Removing assets from an estate to lessen or remove tax liability;
- Avoiding probate fees;
- Flexibility in regards to how an individual’s property is to be distributed;
- The ability to control an individual’s property and assets during their lifetime; and
- The ability to keep their property and affairs confidential due to the fact that there are few reporting requirements.
How Are Inter Vivos Gifts Made?
Not every transfer of property qualifies as a gift. The term gift has legal significance, and only those transfers which meet all of the elements of proof will be classified as gifts. Although the laws regarding gifts may vary, the general elements which must be met in order for a valid inter vivos gift to be made include:
- Capacity of the donor;
- Delivery to the donee;
- Control; and
- Acceptance by the donee.
In order for a gift to be considered valid, the donor must be at least 18 years of age and possess testamentary capacity. Testamentary capacity means that the donor is aware of what they are doing and to whom they are giving the gift.
The donor must intend to give the gift to the donee immediately, and that intent should be put in writing. In addition, the intent to make the gift must make a present and irrevocable transfer of title or the right of ownership.
This ensures that there is a present transfer of interest and that the gift is effective immediately. A donor cannot intend for the gift to transfer at the time of their passing.
The gift must be delivered to the donee, or recipient. The delivery may be made either symbolically or constructively, such as when the physical delivery of the property would be impractical.
The donor is required to sever their interest in the property which is gifted. This relinquishes their control over the property.
The gift must then be accepted by the donee, or recipient. If the gift is a gift of value, the law will presume that the recipient will receive the gift. It is still advisable for the recipient to express their acceptance in writing in case a dispute arises in the future.
What Can be Transferred as a Gift?
Essentially any form of property may be transferred as a gift. Various forms of assets can also be transferred as gifts.
This includes cash as well as gifts in kind, which includes property other than cash, such as:
- Real estate;
- Bonds; and
- Other property.
It is important to note that services are generally not considered to be property and, therefore, cannot be the subject of a gift transfer.
Do I Need an Attorney for Gifts Made During My Life?
Yes, it is essential to have the assistance of an estate attorney for any issues, questions, or concerns you may have with gifts made during your lifetime. Consulting with an attorney ensures that the gift is correctly transferred.
Your attorney can advise you regarding estate and gift taxes and help you draft any necessary documents for the transfer of your property or other assets. Your attorney can also ensure that all of the necessary steps are taken in order to ensure that an inter vivos gift is not revocable as well as not taxable.
In addition, your attorney can assist you with drafting a solid estate plan in order to avoid any potential conflicts related to the distribution of your estate. Your attorney will help ensure that your rights and wishes for the distribution of your estate are carried out properly.
If any issues arise following your death, your attorney will help ensure that those conflicts are resolved.