Simply defined, inter-vivos gifting refers to giving gifts during your lifetime. There are other categories of gifts in the law. The opposite of inter-vivos giving is testamentary gifting. Testamentary gifts are gifts that you direct to take effect on your death, such as those made in your last will and testament or your living trust. Gifts causa mortis are more similar to inter-vivos gifts. Gifts causa mortis are gifts made in anticipation of the grantor’s imminent death.
State law and the Internal Revenue Service define inter-vivos gifts differently. To qualify as an inter-vivos gift and therefore be valid and enforceable under state law, inter-vivos gifts must meet certain criteria. Before making a gift during your lifetime, you should be aware that failure to meet state law requirements may not affect the gift tax treatment of certain transfers for federal gift tax purposes. More information on both common state law requirements for inter-vivos gifts and the IRS definition of a gift appears below.
State Requirements for a Valid Inter-Vivos Gift
In most states, there are three requirements to have a valid inter-vivos gift.
First, the person giving the gift, or the “grantor,” must intend to transfer ownership to the gift recipient, or “donee.” For example, merely allowing another person use of property may not convey intent to make a gift.
Second, the possession of the gift must be actually delivered to the recipient. If the item is personal property, it should be in the recipient’s possession. Constructive delivery of an item of control, such as keys to a car or home, may be sufficient to fulfill this requirement.
Finally, for a gift to be valid, the recipient must accept the gift. The law will not force a gift on an unwilling recipient. Acceptance is usually presumed and shown through action, but may be rebutted by facts suggesting that acceptance did not occur.
Gifts causa mortis require all of the elements of inter-vivos gifts, plus the requirement that the grantor is anticipating their imminent death. If death is not imminent, the grantor may take back the gift.
The IRS Definition of Inter-Vivos Gifts
Testamentary gifts are taxed under state and federal estate taxes, while inter-vivos and gifts causa mortis are taxed under the federal and, in some cases, state gift taxes. Before giving any large inter-vivos gifts, consider the tax consequences of such gifts.
The IRS does not care about the grantor’s intentions to make a gift, but looks solely to the actual value of the transfer. According to the IRS, any transfer for less than full value as a gift or partial gift for gift tax purposes. This means that even if you call something a “sale,” the IRS may call it a gift and tax it as such if you do not receive full value for transferring the property.
Grantors are generally responsible for paying the gift tax on taxable gifts, not the recipients. Before giving any large gifts, contact your attorney or accountant about the tax implications of your gifts.
The IRS website page entitled ‘Frequently Asked Questions on Gift Tax’ offers additional details and answers pertaining to federal gift tax rules, exemptions, and rates.