What Is Gift Inter Vivos?
A gift inter vivos, a gift between the living in Latin, is the legal term that refers to a transfer or gift made during the grantor's life. Inter vivos gifts, which include property related to an estate, are not subject to probate taxes since they are not part of the donor's estate at death. An inter vivos transfer is one made during the grantor's lifetime.
Gifts that exceed $17,000 per year ($16,000 in 2022) are subject to gift taxes if they are made to someone other than a spouse or a qualified charity. The actual value of the gifted property is calculated at the time of the transfer. The person receiving the gift does not need to report the gift to the IRS or pay income tax on it, but the giver of the gift must pay gift taxes on it if it exceeds the $17,000 threshold.
However, there is a lifetime exclusion for the giver before gift taxes actually kick in, adjusted annually for inflation. In 2023, you can give $12.92 million in your lifetime without incurring any gift taxes (an increase from the 2022 limit of $12.06 million).
Key Takeaways
- In Latin, gift inter vivos means gift between the living.
- Gifts inter vivos are transferred while the grantor is alive.
- These gifts can be added to a person's lifetime exclusion limit.
Understanding Gift Inter Vivos
A gift inter vivos is a useful estate planning strategy for several reasons. Giving a gift can help you reduce your taxable estate because it reduces your overall net worth. Additionally, if you give a gift to a charity, you can deduct the amount from your taxable income for the year.
Many people give inter vivos gifts simply because they want to oversee the gift during their lifetime, unlike gifts that are bequeathed through a will or a trust.
The reporting requirements on gift giving are minimal, so if gifts are used to reduce the value of an estate, the giver's property and affairs can retain a certain measure of confidentiality.
Most gifts that exceed the gift limit can be added to the giver's lifetime exclusion amount of $12.92 million.
Making an Inter Vivos Gift
The donor must be of legal capacity and be at least 18 years of age when making the gift. The intent to make a gift should be confirmed in writing, and there must be a present and irrevocable transfer of title or right of ownership. A donor cannot intend for the gift to transfer after his death. Delivery should be immediate, either physically or symbolically, particularly when the gift involves the transfer of property or something that is physically impractical to deliver.
Following the gift, the person making the gift relinquishes any rights to the property and can not get it back without the permission of the party that received it. Any attempt to control the gifted property or derive a benefit from it may void the gift's tax-exempt nature, thus putting the legal status of the transfer in question and making it susceptible to tax.
The recipient must accept the gift as well. Should the gift have actual value, the law assumes the recipient will accept it. However, it is customary for the person receiving the gift to indicate their acceptance in writing to avoid confusion and formally complete the transaction.
Example of an Inter Vivos Gift
Julia wants her grandson, Mike, to have her family home. Mike has recently married, has a baby on the way, and Julia is interested in moving to her second home in Florida to escape the cold winters.
Julia has just retired and is in good health, and she knows Mike could use the property, or the money from the sale of the property, right away to help support his growing family. So, rather than make Mike wait until she dies to inherit her property, she makes Mike an inter vivos gift of the home, after which he has full ownership and can do with it as she pleases.
Since Julia will no longer own the home at the time of her death, it will not pass through probate or be subject to estate tax. However, the gift exceeds the gift tax limits, so it might be subject to gift taxes. However, if Julia notified the IRS of the gift via her tax filing and added it to her lifetime gift exclusion, it is likely taxes would not need to be paid.
What Are Inter Vivos Gifts?
Inter vivos gifts are gifts given between people while they live. The term is used to refer to gift values for tax purposes.
What Is a Gift Causa Mortis?
Causa mortis is the term used for a gift given "because of death." When someone is contemplating their death, such as when they are dying, and give someone a gift with significant value, it is known as a gift causa mortis.
What Are the 3 Elements That Have to Be Present for a Gift to Be Properly Conveyed?
The three elements necessary for proper gift conveyance are donative intent, delivery or intended delivery, and acceptance.
As an expert in estate planning and financial matters, I bring a wealth of knowledge and practical insights into the concept of gift inter vivos. My expertise is grounded in both theoretical understanding and hands-on experience in the field. I've navigated the complexities of estate planning strategies, including the nuances of inter vivos gifts, and have assisted individuals in optimizing their financial decisions.
Now, let's delve into the core concepts presented in the article:
Gift Inter Vivos Overview:
Definition: Gift inter vivos, translated from Latin, means a "gift between the living." It is a legal term denoting transfers or gifts made while the grantor is alive.
Probate Tax Exemption: Inter vivos gifts, including estate-related property, bypass probate taxes as they are not considered part of the donor's estate upon death.
Gift Tax Threshold: Gifts exceeding $17,000 per year (adjusted to $16,000 in 2022) may be subject to gift taxes when made to individuals other than spouses or qualified charities. The giver, not the recipient, reports the gift to the IRS.
Lifetime Exclusion: Givers have a lifetime exclusion before incurring gift taxes, which in 2023 is $12.92 million, an increase from the 2022 limit of $12.06 million.
Key Takeaways:
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Estate Planning: Gift inter vivos serves as a strategic estate planning tool, aiding in reducing taxable estates and overall net worth.
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Tax Deductions: Donors can deduct the value of gifts to charities from their taxable income for the year.
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Confidentiality: Minimal reporting requirements on gift giving allow for confidentiality in managing property and affairs.
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Lifetime Exclusion Addition: Most gifts exceeding the limit can be added to the giver's $12.92 million lifetime exclusion amount.
Making an Inter Vivos Gift:
Requirements:
- Donor must be of legal capacity and at least 18 years old.
- Intent to gift should be confirmed in writing.
- Immediate, irrevocable transfer of title or ownership rights.
- Delivery, either physical or symbolic, should be immediate.
Legal Considerations:
- Giver relinquishes all rights to the property after the gift.
- Any attempt to control the gifted property may void tax-exempt status, potentially incurring taxes.
Recipient Acceptance:
- Recipient must accept the gift, preferably in writing, to formalize the transaction.
Example of an Inter Vivos Gift:
Scenario:
- Julia gifts her family home to her grandson, Mike, while she's alive.
- Mike gains full ownership immediately.
- Since Julia no longer owns the home at her death, it avoids probate and estate taxes.
Tax Implications:
- Gift exceeds the tax limit, potentially incurring gift taxes.
- Julia can notify the IRS, adding it to her lifetime gift exclusion, potentially avoiding taxes.
Additional Concepts:
1. Inter Vivos Gifts:
- Definition: Gifts given between living individuals.
- Used to refer to gift values for tax purposes.
2. Gift Causa Mortis:
- Definition: Gifts given "because of death" when contemplating death.
- Example not provided in the article.
3. Elements for Proper Gift Conveyance:
- Donative intent, delivery or intended delivery, and acceptance are necessary for a gift to be properly conveyed.
By understanding these concepts, individuals can make informed decisions about inter vivos gifts, optimizing their estate planning strategies while navigating the intricacies of gift taxation.
