Stated simply, inter vivos gifts are those given by a donor to a beneficiary during the donor’s lifetime. Many families and individuals enjoy passing property or wealth on to loved ones, friends or charities in this manner. The term “inter vivos” is a Latin one that can be translated as “between living people.”
One of the chief reasons a donor makes this kind of gift is to help a beneficiary avoid paying unnecessary probate taxes after the donor passes away. Another motivation is to give the donor the personal pleasure of seeing the beneficiary enjoy the gift or funds. While other reasons may exist, those are among the most common ones.
The following material reviews some key legal terms you’ll want to know while working with your Houston estate planning attorney. There’s also a list of key factors required for a valid transfer of an inter vivos gift.
Legal terms often used when conveying wealth or property as inter vivos gifts
- Donor/grantor. Both these terms are used to describe the person making the inter vivos gift;
- Beneficiary. The party designated as the recipient of the funds or property;
- Settlor. This term is often just used to refer to someone who creates a trust;
- Advancement. When making a formal inter vivos gift, you should tell your lawyer if you want to treat a gift as an “advancement” against future gifts you’ve already designated for a beneficiary in your estate plan. That will mean that the value of the current gift will reduce the size or value of your later bequest to the specific beneficiary. You can also just state that you do not want your current, inter vivos gift treated as an advancement against what you’ve designated for a person or group in your estate plan;
- Capital gains taxes. Keep in mind the tax consequences that can occur if you currently give someone an inter vivos gift like stock shares. For example, if you give someone an inter vivos gift of stock shares that originally cost you less than $3,000 – but are now worth over $10,000 — your beneficiary will likely have to pay a capital gains tax on that gift. To prevent this burden from being passed on to a beneficiary, you may just want to give the person cash to buy stock shares — or anything else they prefer;
- Gift taxes. At present, every beneficiary who receives an inter vivos gift worth more than $15,000 must pay a gift tax on the amount to the IRS. Therefore, most people who give these gifts keep them under $15,000 for each recipient. You’ll need to ask your attorney what the limits are on the size of the inter vivos gifts that spouses may want to give each other.
Choosing to create a trust when transferring wealth as an inter vivos gift
Some grantors may not want to make direct cash or property gifts. Instead, they make want to make this type of gift by creating either a revocable or irrevocable trust. As may now be clear, these types of trusts take effect while the settlor is still alive. In contrast, testamentary trusts don’t take effect until the settlor dies.
Here’s additional information about both revocable and irrevocable inter vivos trusts.
- The revocable inter vivos trust. This can go into effect (or become operative) during the settlor’s own lifetime. This type of trust can also be referred to as a living trust – one that is drafted so that it won’t have to go through the probate process;
- The irrevocable inter vivos trust. This type of conveyance is designed to go into effect while the settlor is still alive. However, it cannot be revoked after the settlor has finalized it. People normally use this type of trust to help reduce the beneficiary’s potential tax debt.
Key information about making inter vivos gifts to minors
Since minors cannot receive large gifts of money or property directly, inter vivos gifts made to them require the use of a trust. A party must be named as the guardian of the trust to manage its contents (under court supervision) on behalf of the child – until s/he reaches the age of majority.
Conditions that must be met for a valid inter vivos gift to be made
- The donor must have capacity. As a donor, you must be at least 18 years old when you make this type of gift;
- The donor must have the proper intent. This requirement usually means that the donor intends for the gift to be transferred during his/her lifetime;
- Receipt of the gift by the beneficiary. You must arrange a reliable form of delivery to the beneficiary. This means the donor/grantor (or settlor) will then no longer have control over the funds or other property;
- Acceptance. The beneficiary must accept the gift. While most of us would readily accept an inter vivos from someone else – that’s not going to be true of everyone. In some cases, high taxes might be due on the gift — or the recipient may simply not want to accept any gift from the grantor or settlor.
Please feel free to contact one of our Murray Lobb attorneys with any questions you may have about making legal gifts to others for current delivery – or to be received later as part of your personal estate plan.