I am often surprised that people do not know much about the law of gifting. Over the years, I have encountered numerous situations where a gift was made incorrectly resulting in no gift in the eyes of the law. When you make a gift, there are three elements that should occur. 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 pretty simple, yet these concepts can lead to confusion.
The concept of gifting is best divided into 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 china 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 the gift is complete.
More problematic lifetime gifting occurs when a person is gifting assets to avoid a creditor or a tax. For example, a person planning on moving to a nursing home can not give away my 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. In that event, making the gift well in advance of the move (6 or 7 years) could cure the problem. Similarly, if the person transfers the money, but still actually controls the money, even if the gift is “old and cold” it could be ignored.
Another issue with lifetime giving is the application of the gift tax. Lifetime gifts to individuals from individuals that exceed $12,000 in a particular year may result in a gift tax unless appropriately structured in an approved way, or unless qualifying as an exception (e.g. for medical expenses or education).
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. In fact, under Illinois law, gifts made at death are subject to a set of statutory rules. Unless the writing qualifies as a will, or is a valid trust, then the gift may be ignored. A trust may authorize the donor to leave a list or a gift letter. People who want this type of flexibility should consider writing a trust.
Should you have any questions about the law of gifting or any other law that may affect your business, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.
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