‘Tis the Season — Gifts as an Estate Planning Tool

By Cooley A. Arroyo

When I was growing up, my mother always said, “You can’t wear it, use it, or spend it until the thank you note is in the mail.” That was a rule in my family, but like many people, I was somewhat surprised in law school when I learned that there is actual law that governs gift-giving. The season of giving is now upon us, and so we thought a quick primer on the law of gift-giving would be just what Santa ordered.

Many people think that a gift is simply a gift, but in many cases, a gift can also be used as an estate planning tool. After all, some people prefer to give someone a favorite necklace or a beloved heirloom in life when they can see the person’s joy in receiving it. These gifts — or “donative transfers”— will effectively move an item out of someone’s estate once and for all if the gift is valid.

There are three basic elements to a valid gift:
  • Donative intent — the giver actually intends to give the item to the recipient 
  • Delivery — the giver gives the item to the recipient (rather than merely promising to do it in the future)  
  • Acceptance — the recipient takes the item into her possession
To put these concepts in action, consider the following example:
In 1973, Valerie inherited a beautiful diamond ring from her mother. Her grandson, Patrick, has mentioned his wish to marry his girlfriend of several years, and Valerie thinks the family ring would be perfect for the new addition to their family. At Christmas Eve dinner with Patrick and his parents, Valerie hands him the ring in a velvet box with a handwritten note that reads, “I hope this diamond ring makes you as happy as it has made me. Merry Christmas from Grandma Valerie.” Patrick is touched by the gesture and hugs Valerie, tucking the box into his pocket and thanking her for her generosity.
In this example, Valerie intended to give Patrick the ring. If Valerie had been ill or under anesthesia, for example, there may have been some question as to whether she actually meant to give him the ring, but her actions here demonstrate that she acted intentionally. Handing the ring over to Patrick constitutes delivery, and he took possession of the ring to satisfy the requirement of acceptance. By giving Patrick the ring, Valerie has removed it from her estate, and she will no longer need to consider it in her will or other estate plans. Similarly, when Valerie passes away, her heirs will not be able to contest the ownership of the ring because it was rightfully passed to Patrick during Valerie’s life.

During the holiday season, many people might consider a gift from the heart that comes from the home. Works of art, jewelry, and other treasures are often wrapped up beneath the Christmas tree, but it is important to consider how those gifts might impact one’s estate plan. There may be tax implications for the gift, or the item may already be designated for another recipient in a person’s will. To ensure that your gift makes the perfect holiday memory, consult with your attorney or any of the estate planning attorneys at Cleveland, Waters and Bass before making a gift from your personal estate.

(And if you receive such a gift, don’t forget the thank you note!)

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