what is a gift inter vivos

3 min read 25-12-2024

A gift inter vivos, often shortened to simply "gift inter vivos," is a gift made during the donor's lifetime. This contrasts with a gift causa mortis, which is a gift made in anticipation of death. Understanding the difference is crucial for estate planning and tax implications. This comprehensive guide will delve into the intricacies of gifts inter vivos, outlining their benefits, legal considerations, and potential drawbacks.

Understanding the Definition of a Gift Inter Vivos

At its core, a gift inter vivos is a voluntary transfer of property from one person (the donor) to another (the donee) while the donor is still alive. The transfer must be complete and irrevocable; the donor relinquishes all rights and control over the gifted asset. This means the donor cannot reclaim the gift later.

Key Elements of a Valid Gift Inter Vivos

Several essential elements must be present for a gift inter vivos to be legally valid:

Donative Intent: The donor must intend to make a gift, not merely a loan or conditional transfer. This intent must be clear and unequivocal.
Delivery: The donor must deliver the gift to the donee. This delivery can be actual (physical transfer of the asset) or constructive (transfer of documents representing ownership).
Acceptance: The donee must accept the gift. Acceptance is generally presumed unless explicitly refused.

Failure to meet any of these criteria could render the gift invalid. Legal advice is recommended to ensure compliance.

Types of Property That Can Be Gifted Inter Vivos

A wide array of assets can be transferred as gifts inter vivos, including:

Cash: A straightforward and common method of gifting.
Stocks and Bonds: Transferring ownership involves filling out the appropriate paperwork.
Real Estate: This requires careful legal documentation and recording of the deed transfer.
Personal Property: This includes items like jewelry, artwork, and collectibles.

Tax Implications of Gifts Inter Vivos

The Internal Revenue Service (IRS) carefully regulates gifts inter vivos due to their potential impact on estate and gift taxes. Annual gift tax exclusion limits are in place to allow for certain amounts to be gifted without tax consequences. Gifting beyond this threshold will require filing a gift tax return.

Potential Benefits of Making Gifts Inter Vivos

Gifting while alive offers several advantages:

Estate Tax Reduction: Reducing the size of your estate can lessen estate tax liability upon death.
Control and Flexibility: You retain control over your assets while alive, deciding when and how to distribute them.
Financial Assistance to Loved Ones: You can provide financial support to family members during your lifetime.
Avoid Probate: Gifts inter vivos can bypass the probate process, which can be lengthy and costly.

However, there are downsides to consider.

Potential Drawbacks of Gifts Inter Vivos

It's crucial to acknowledge the potential drawbacks:

Loss of Control: Once a gift is made, you lose control over the asset.
Irrevocability: The gift cannot be taken back, even if circumstances change.
Gift Tax Liability: Gifts exceeding the annual exclusion can trigger gift tax obligations.
Medicaid Implications: Large gifts can impact eligibility for government assistance programs like Medicaid.

How to Make a Valid Gift Inter Vivos

To ensure the validity and effectiveness of a gift inter vivos, several steps should be taken:

Consult with Legal and Tax Professionals: Seek advice from experienced attorneys and tax advisors to tailor your gifting strategy to your specific circumstances.
Prepare the Necessary Documentation: This often involves formal legal documents, deeds, or stock transfer forms.
Ensure Proper Delivery: The method of delivery must meet the legal requirements for the type of asset being transferred.
Maintain Records: Keep accurate records of all gifts made to comply with tax reporting requirements.

Conclusion: Planning Your Gifts Inter Vivos

Making a gift inter vivos is a significant financial and legal decision. By understanding the intricacies of the process and seeking professional guidance, you can ensure your gifts are legally valid and meet your intended goals. Remember to consider the tax implications, potential drawbacks, and the specific type of assets you wish to transfer. Careful planning is essential for a successful and compliant gift inter vivos strategy. Consider consulting with a financial advisor and estate planning attorney for personalized guidance.