Personal gifts can be made while a person is alive or they may be made after death, according to that person's will. When a gift is given during someone's lifetime or when an irrevocable trust is created for a beneficiary or beneficiaries, that is called an inter vivos gift. Inter vivos gifts or trusts are often used and referenced in wills. The benefit of an inter vivos trust or gift is that it can help avoid probate on property in the trust. When a gift is transferred upon a person's death by a will or a revocable trust, that's called a testamentary gift.
Giving Gifts in a Will
Testamentary gifts take effect after your death. They can be used to plan future ownership of property upon your death to make certain income tax advantages or other advantages available. There are three types of testamentary gifts: specific, general and residuary.
A specific gift includes details so it's very clear what property is being given away and to whom. An example of a specific gift is if a will states that "Mary Smith receives all of my furniture." Another type of specific gift is to forgive a specific debt that someone owes to you. These gifts are given to the recipients before general and residuary gifts are distributed from the estate.
General gift isn't precise enough to interpret fully. However, sometimes at first glance it may seem specific. For instance, your will states that you're giving John Doe "a computer." This might appear to be a specific gift, but what if you own several computers? Which computer will John get? Since there is more than one computer, the gift of a computer is considered a general gift. In this scenario, if you wanted to make a specific gift to John then you would have to be more specific and include something that would distinguish it from the rest. For example, if you have several computers, but only have one Mac computer, you could say " I give John my Mac computer.
A residuary gift deals with property that's leftover after the rest of the will have been carried out. For example, the residuary gift might state "the rest of my property goes to my daughter, Katherine." Once the other gifts (i.e. specific and general gifts) are distributed, whatever is left in the estate is the residual property, and goes to Katherine.
Giving Gifts While Alive
Why would you give an intervivos gift or set up an inter vivos trust, if you plan on giving someone property through your will? A gift made while someone is alive may have financial and non-financial benefits. The gift giver may get pleasure from seeing someone enjoy or use the gift. Also, from a tax standpoint, there may be some savings in making lifetime gifts. For instance, gifts of $11,000 per person per year are not considered taxable gifts. If spouses give joint gifts, $22,000 per year, it's tax-free. Plus, giving a inter vivos gift or setting up an inter vivos trust now, may help with avoiding taxes on the property after you die if it's listed in your will.
A disadvantage of giving gifts during one's lifetime is the loss of control over property. Inter vivos gifts are irrevocable, which means that the gift giver many not undo the gift.
Questions for Your Attorney
- Is it better to give a gift during life rather than leaving it to another in a will?
- What are the financial benefits of giving gifts during one's lifetime?
- Is it possible to revoke a gift I gave to someone in my will?