I’m often surprised that people do not know much about the law of gifting. Over the years, I have encountered numerous situations where an intended gift was made incorrectly resulting in no gift in the eyesof the law.

There are three elements in gifting:

First, you have to own or have the right to direct the thing you want to give.

Second, you need donative intent: that is, you should intend to make the gift.

Third, it must be a completed gift; that is, you must relinquish control.

Sounds simple, yet these concepts can lead to confusion.  To understand the concept of gifting, it is best to divide it between Lifetime Gifts and Gifts at Death.

Lifetime Gifts: Gifts made while you are living are the easiest to complete. For example, to give grandmother’s dishes to a relative during a lifetime requires actually packing it up, shipping it or handing it over and having the recipient accept it. If the person making the gift owned it to begin with, then when the package arrives, the gift is complete.  If you want to be clear that you intend a gift, include a note to that effect. 

More problematic lifetime giving occurs when a person is gifting to protect assets. For example, a person planning on moving to a nursing home cannot give away money to a friend or family member and hope to immediately qualify for Medicaid. In that case, his or her “donative intent” is in question and the transfer can be ignored. Furthermore, the gifting can give rise to new legal problems and could result in a Medicaid “penalty period.” Time can be the cure. Gifts made well in advance (think years) of a move to a Medicaid-based facility may not give rise to problems.

Similarly, gifting assets when you owe a creditor can also be disregarded.  The creditor could claim the “gift” was a fraudulent transfer to avoid payment of the debt owed.  The creditor could then bring the person receiving the gift into the mix to force a return of the property.

Another issue with lifetime giving is the application of the gift tax. During your lifetime, you can give any person a relatively small financial gift annually (the annual exclusion gift) without resulting in a gift tax.  During 2022, you can gift $16,000., and in 2023, $17,000.  You can also gift for medical or education purposes.  Amounts that exceed the gift tax exclusion limit, or which are not for medical expenses or education, are subject to the tax. In that case, the person making the gift should either pay the tax or file a gift tax return. This latter step reduces the exemption from the estate tax available at death.

Lifetime gifting to a charity should also be accomplished with some forethought and planning. Assuming the donor has selected the charity, by choosing the right things to donate and the right time to make the donation, then the best tax result can be achieved.

Gifts at Death: When gifting at death, some people think that if they leave a note or a list, it will be respected and that their gifts will be made as directed. In fact, under Illinois law, gifts made at death are subject to a complex set of statutory rules related to the writing of a will, questions about capacity, and the intent of the person making the gift.  At a minimum, if a gift at death is intended, it should be put in a Last Will and Testament.  Drafting a Will is more complicated than it seems at first blush, and like a lot of things, is best done with professional advice.

Assuming that a valid Will exists, then probate is the result with the gift being made at the end of the probate process.    Prior to effectuating the gifts in a Will, the estate must publish for claims and pay creditors.  Legal notices, court filings and forms are the basis of probate and can become complex quickly.  Probate court often results in families finding time to argue over who should be in charge and who has, or should have, the assets.

Gifts made through a trust are not subject to probate and are effectuated privately at death.  Making sure that the trust is written under the rules found in the lengthy Illinois Trust Code, and that the actions of the Trustee in distributing gifts are in accordance with Illinois law poses a labyrinth for the unwary.  However, given that trusts are private and that they allow for flexible gifting, they often are a much better option than gifting by will. 

As with lifetime gifting, there are many tax implications to gifts made at death. 

For more about lifetime and at death gifting, contact Navigant Law Group today!  Chart Your Course with Us!  

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