Gift inter vivos is a popular term used in estate planning, but it is not necessarily familiar to everyone. This term represents a type of gift that is given during one’s lifetime. The purpose of this article is to provide a comprehensive overview of gift inter vivos to help readers better understand this financial term.
What is a Gift Inter Vivos?
A gift inter vivos is a legal term that refers to a gift made during a person’s lifetime. Put simply, it is a gift that is given to someone while the giver is still alive. This type of gift is different from a testamentary gift, which is made in a will or other testamentary document that only takes effect after the giver’s death.
Gift inter vivos can take many forms, including cash, property, or other assets. The giver must intend to make an immediate transfer of ownership to the recipient, and the recipient must accept the gift. Once the gift is made, the giver no longer has any control over the property or assets.
One advantage of a gift inter vivos is that it can reduce the size of the giver’s estate, which may have tax benefits. Additionally, it allows the giver to see the recipient enjoy the gift while they are still alive. However, it is important to consider the potential consequences of giving away assets, as it may impact the giver’s financial security in the future.
Understanding the Legal Definition of Gift Inter Vivos
For a gift to be considered inter vivos, there must be three essential elements involved: Donative intent, Delivery, and Acceptance.
Donative intent simply means there must be an intention on the part of the giver to fully and voluntarily give the gift to the recipient without any compensation in return.
The delivery element refers to the physical transfer of the gift from the giver to the recipient. The delivery can be made in various forms depending on the nature of the gift, but it is essential that it is carried out voluntarily by the giver themselves and not through a third party.
The third element is acceptance. The recipient must accept the gift willingly and without any coercion or compulsion. Upon accepting the gift, the recipient assumes ownership of the gift and becomes fully responsible for it.
It is important to note that a gift inter vivos is different from a gift causa mortis, which is a gift made in contemplation of death. In a gift causa mortis, the gift only becomes effective if the giver dies from the contemplated peril. In contrast, a gift inter vivos takes effect immediately upon delivery and acceptance.
Additionally, gifts inter vivos can have tax implications. Depending on the value of the gift and the relationship between the giver and recipient, gift taxes may need to be paid. It is important to consult with a tax professional to understand the potential tax consequences of making a gift inter vivos.
Types of Gift Inter Vivos: Revocable and Irrevocable
Gift inter vivos can be classified into two categories: revocable and irrevocable.
A revocable gift inter vivos is one that can be withdrawn or canceled at any time by the giver. This means that the giver maintains control over the gift and can choose to take it back or alter its terms. In contrast, an irrevocable gift inter vivos is one that cannot be taken back or canceled by the giver. Once the gift is made, the giver has no control over it and cannot change it in any way.
Revocable gifts inter vivos are often used in estate planning to provide flexibility for the giver. For example, a person may choose to make a revocable gift inter vivos to a family member, but retain the right to cancel the gift if their financial situation changes. This can be particularly useful in situations where the giver may need the gifted assets to support themselves in the future.
Irrevocable gifts inter vivos, on the other hand, are often used for tax planning purposes. By making an irrevocable gift inter vivos, the giver removes the gifted assets from their estate, which can reduce the amount of estate tax owed upon their death. Additionally, irrevocable gifts inter vivos can be used to transfer assets to beneficiaries while the giver is still alive, which can help to avoid probate and ensure that the assets are distributed according to the giver’s wishes.
Differences between Gift Inter Vivos and Testamentary Gifts
The main difference between a gift inter vivos and a testamentary gift is that a gift inter vivos is made during one’s lifetime and is effective immediately, whereas a testamentary gift is made in a will or other testamentary document and only becomes effective upon the giver’s death.
Another difference is that the process for gifting inter vivos is simpler and less cumbersome than making a testamentary gift. A testamentary gift requires the process of probate to settle the estate and distribute the assets, while a gift inter vivos can be completed using simpler transfer procedures.
It is important to note that gift inter vivos can have tax implications, as they may be subject to gift taxes. On the other hand, testamentary gifts may be subject to estate taxes. It is important to consult with a financial advisor or attorney to understand the tax implications of each type of gift.
Additionally, gift inter vivos can be revoked or changed by the giver at any time, while testamentary gifts cannot be changed after the giver’s death. This means that a gift inter vivos may not be a suitable option for those who want to ensure that their assets are distributed according to their wishes after their death.
Tax Implications of Gift Inter Vivos
One of the most significant advantages of gift inter vivos is that it can help reduce the giver’s estate value and their tax liability. By giving away assets while still alive, the giver can reduce the overall value of their estate, resulting in fewer estate taxes to be paid. There are some limits, however, to the amount of assets that can be gifted without incurring taxes, which vary depending on the estimated size of the giver’s estate.
It is essential to note that not all gifts inter vivos are eligible for tax benefits. Certain types of assets, such as real estate and investments, may have different tax implications. To avoid any tax-related issues, it may be advisable to seek the guidance of a tax or financial professional.
Additionally, it is important to consider the potential impact of gift inter vivos on Medicaid eligibility. If the giver requires long-term care in the future, Medicaid may look back at any gifts made within the previous five years and consider them as part of the giver’s assets. This could potentially affect their eligibility for Medicaid benefits. It is crucial to carefully plan and consider all potential consequences before making any gifts inter vivos.
How to Properly Execute a Gift Inter Vivos
Proper execution of a gift inter vivos involves the following steps:
- Determine the assets to be gifted, taking into consideration tax implications and other relevant factors.
- Ensure that the essential elements of a gift inter vivos are met: donative intent, delivery, and acceptance.
- Draw up a legal document, such as a deed or bill of sale, to memorialize the gift.
- Transfer ownership of the gift to the recipient.
- Update financial records, such as insurance policies and estate plans, to reflect the gift.
It is important to note that a gift inter vivos may have implications for Medicaid eligibility and long-term care planning. If the gift is made within the five-year lookback period, it may be subject to penalties and affect the individual’s eligibility for Medicaid benefits. It is recommended to consult with a qualified attorney or financial advisor before executing a gift inter vivos to ensure that all potential consequences are considered.
Advantages and Disadvantages of Giving a Gift Inter Vivos
Gift inter vivos can have advantages and disadvantages for both the giver and the recipient. Some of the main advantages of giving gift inter vivos include:
- Reducing the giver’s estate value and overall tax burden
- Providing the recipient with immediate access to the gifted asset
- Minimizing paperwork and administrative processes that are typical of testamentary gifts
Some of the disadvantages of giving gifts inter vivos include:
- There may be tax implications to consider, which can vary depending on factors like the size of the gift and the asset being gifted.
- Giving a gift inter vivos reduces the overall value of the giver’s estate, which may not be desirable in some situations.
- It is difficult, if not impossible, to take back a gift inter vivos once it is given.
Another disadvantage of giving a gift inter vivos is that it may cause tension or conflict within the family or among friends. The act of giving a gift inter vivos can be seen as favoritism or unequal treatment, especially if the gift is of significant value. This can lead to hurt feelings, resentment, and even legal disputes.
Who Can Benefit from a Gift Inter Vivos?
Gift inter vivos can be beneficial for both the giver and the recipient. Some of the groups that may benefit from a gift inter vivos include:
- Individuals who wish to reduce their estate tax liability and overall estate value
- The elderly or those approaching the end of their lives who wish to bequeath their assets to their beneficiaries in an easier way
- Parents who wish to pass on their assets to their children or grandchildren to support their education or other financial expenses
- Individuals who wish to donate to charitable causes while still alive
Another group that may benefit from a gift inter vivos are individuals who want to protect their assets from potential creditors. By transferring assets through a gift inter vivos, the assets are no longer considered part of the giver’s estate and are therefore protected from creditors.
Additionally, gift inter vivos can be a useful tool for business owners who want to transfer ownership of their business to a family member or trusted employee. By gifting shares of the business, the owner can ensure a smooth transition of ownership and avoid potential conflicts or legal issues in the future.
Examples of Successful Gift Inter Vivos Cases
Many people have benefited from using gift inter vivos as part of their estate planning strategy. One example is Albert Conner, who gifted his son 10,000 shares of stock in an oil company while still alive. The gift helped Albert reduce his estate value, resulting in lower estate taxes, and provided his son with immediate access to a valuable asset.
Another example is Maria Rodriguez, who gifted her home to her children as a joint tenancy with the right of survivorship. This arrangement allowed Maria to retain ownership of her home while she was still alive, but upon her death, her children became immediate owners of the property, without going through probate.
Gift inter vivos can also be used to support charitable causes. For instance, John Smith gifted a significant portion of his estate to a local charity while he was still alive. This allowed him to see the impact of his donation and receive a tax deduction for the gift.
Additionally, gift inter vivos can be used to help family members who are struggling financially. For example, Sarah Johnson gifted her daughter a sum of money to help her pay off her student loans. This gift not only helped Sarah’s daughter financially, but it also reduced Sarah’s estate value, resulting in lower estate taxes.
Gift inter vivos can be a powerful tool in estate planning, offering many benefits to both the giver and the recipient. It is essential to understand the legal definition and the different types of gifts inter vivos, along with their advantages and disadvantages, tax implications, and proper execution, to make an informed decision about incorporating this tool into your estate planning strategy. Seek the advice of professionals to ensure that your gifts inter vivos meet all the legal requirements and achieve your goals.
It is important to note that gifts inter vivos can also have implications for Medicaid eligibility. If you plan on applying for Medicaid in the future, any gifts made within the five-year lookback period may affect your eligibility. It is crucial to consider this when deciding on the timing and amount of your gifts inter vivos. Consulting with an experienced estate planning attorney can help you navigate these complex issues and ensure that your estate plan aligns with your goals and needs.