Key Takeaways
- Voluntary, irrevocable gift made during donor's lifetime.
- Requires intent, delivery, and acceptance to be valid.
- Bypasses probate, reducing estate taxes and delays.
- Subject to federal gift tax with annual exclusions.
What is Gift Inter Vivos?
A Gift Inter Vivos is a voluntary, irrevocable transfer of property or assets from one living person to another without compensation. This type of gift, meaning "between the living" in Latin, occurs during the donor's lifetime and differs from testamentary gifts that take effect after death. Understanding the tax implications is crucial when making such transfers.
These gifts can include cash, real estate, stocks, or other valuable assets, and are commonly used in estate planning to reduce the taxable estate.
Key Characteristics
Gift Inter Vivos has distinct features that differentiate it from other asset transfers:
- Donative Intent: The donor must clearly intend to give the asset permanently, relinquishing all control.
- Delivery: The asset must be physically or constructively delivered, such as handing over keys or signing a deed.
- Acceptance: The donee must accept the gift; acceptance is generally presumed if the gift is beneficial.
- Irrevocability: Once completed, the gift cannot be revoked or reclaimed by the donor.
- Asset Types: Can include stocks—similar to companies like Delta—cash, real estate, or personal property.
How It Works
The donor first decides to transfer ownership of an asset with the intent to give it freely. Delivery follows, which can be actual, like handing over physical stock certificates, or constructive, such as transferring control documents.
Upon acceptance by the donee, ownership is legally transferred immediately, removing the asset from the donor’s estate and potentially avoiding probate taxes and delays. This process is different from post-mortem transfers and can be an effective estate planning tool when used alongside strategies like investing in low-cost index funds.
Examples and Use Cases
Gift Inter Vivos is often used to transfer assets to family members or trusts efficiently:
- Family Transfers: A parent gifts shares of a company like Delta to their child to reduce estate size and provide immediate financial support.
- Educational Gifts: Grandparents may transfer cash or assets to grandchildren for tuition, using annual exclusions to minimize gift tax.
- Partial Property Interests: A donor may deed a portion of real estate to a relative, transferring only some rights while retaining others.
- Investment Assets: Gifting dividend-generating stocks found in best dividend stocks lists can provide ongoing income to the donee.
Important Considerations
Before making a Gift Inter Vivos, consider the federal gift tax rules and annual exclusions to avoid unexpected tax liabilities. Documentation is essential to prove the gift's validity and intent, especially in complex transfers.
Also, be aware of potential impacts on Medicaid eligibility and creditor claims. Consulting a financial advisor familiar with estate planning and concepts like discounted cash flow (DCF) valuation can help you optimize gift timing and size.
Final Words
Inter vivos gifts provide a clear, irrevocable way to transfer assets during your lifetime while avoiding probate. Review your assets and consult a professional to ensure your gift meets legal requirements and aligns with your financial goals.
Frequently Asked Questions
A gift inter vivos is a voluntary and irrevocable transfer of property or assets from a donor to a recipient during the donor's lifetime, without expecting anything in return. It means the donor permanently gives up control of the asset while still alive.
To be valid, an inter vivos gift must have donative intent (the donor's clear intention to give the gift), delivery of the asset (physical or constructive), and acceptance by the recipient. Without these elements, the gift may not be legally effective.
An inter vivos gift is made and effective during the donor's lifetime and does not go through probate. In contrast, a testamentary gift is given through a will and only takes effect after the donor's death, typically subject to probate.
Yes, inter vivos gifts can include various assets such as cash, real estate, vehicles, stocks, jewelry, or partial property interests. The donor transfers ownership without receiving compensation.
Yes, inter vivos gifts in the U.S. are subject to federal gift tax rules. Gifts up to the annual exclusion amount ($17,000 per recipient in 2024) require no tax or reporting, but amounts exceeding this may need IRS Form 709 and count against the donor’s lifetime exclusion.
No, inter vivos gifts are irrevocable once completed. The donor permanently relinquishes ownership and control over the gifted asset, so it cannot be taken back.
Inter vivos gifts help reduce the donor’s taxable estate, potentially lowering estate taxes and avoiding probate fees and delays. They allow the transfer of assets during one’s lifetime, simplifying the distribution process.
Inter vivos gifts can be made to individuals, estates, organizations, or trusts. The donor chooses the donee, and the gift is effective immediately upon delivery and acceptance.
