An intentional transfer of property made from the generosity of the transferor is known as a gift. The person who makes a gift is known as the donor. The person who receives a gift is known as the donee.
There are three basic time periods during which a person can make a gift. First, a person can make a gift during life. Second, a person can make a gift at the moment of death (by a transfer conditioned on death). Third, a person can make a gift by will, after death. In a will, the testator is the donor and the beneficiary is the donee.
This article discusses some aspects of gifts made during life or at the moment of death.
Some Reasons For Making Gifts During Life
There are many reasons for making gifts during life or at the moment of death, rather than by will, after death.
An estate plan may include gifts during life or at the moment of death in order to avoid intestate administration or probate. An estate plan may include gifts during life to avoid estate taxes.
Making a gift during life is the only way to be absolutely sure that the intended donee receives the gift. Some gifts made by a will or trust may not be permitted by law. Some gifts made by a will or trust may be subject to interpretation and construction. Some gifts made by a will may be subject to abatement or a spousal right of election. Because probate or trust administration is carried out by human beings, some gifts made by a will or trust may not be carried out as intended. There is always the possibility that some human being will not obey the law and ensure that the provisions of a will or trust are carried out.
Making a gift during life also allows the donee to benefit from the gift now rather than later. A birthday gift, for example, should be given on the donee’s birthday.
One Reason For Not Making Gifts During Life
One reason for not making gifts during life or at the moment of death is the tax basis of the gift. The donor’s basis of gifts made during life is carried over to the donee, whereas the basis of a gift transferred after life is stepped up to the fair market value of the property at the time of the donor’s death.