People regularly make personal gifts during their lives—your son has finally graduated high school and you decide to reward him with a new car for his eightieth birthday.
Gifting estate assets however may be an unfamiliar concept for some folks who should first know that donating estate property can occur while the donor is alive or near death or after he or she passes away.
The estate litigators at iowaprobatelitigation.com would like to share some FAQs on gifting estate property so potential donors can understand how the law works if someday they choose to donate estate assets to friends or family members.
Q: How does the law define gifts?
A: Three types of gifts exist in estate law. Inter vivos gifts are bequests from a testator (donor) to a recipient (donee) while he or she is alive. This is contrary to a testamentary gift where a donee beneficiary receives an estate asset from the provisions found in the testator’s will. Causa mortis (deathbed) gift transfers occur in anticipation of the testator’s imminent death.
Q: What are the most common inter vivos gifts?
A: Individuals can freely donate estate assets or real property as long as they hold testamentary capacity to do so and perform the transfer under their own free will. Typical inter vivos gifts include land, cash, buildings, stocks, homesteads, bonds, art and valuable personal property,
Q: Will my inter vivos gift pass through probate?
A: When testators properly donate inter vivos gifts, the assets or property escape probate proceedings, but that doesn’t mean interested parties can’t challenge the conveyance in court.
Q: Why would someone contest my inter vivos gift transfer?
A: Testators effectively take a beneficiary’s potential inheritance and give it to someone else when they donate estate property while they’re alive—this practice rarely sits well with some heirs. Donors must further voluntarily transfer tile ownership to the donee and not be unduly influenced into donating the asset. Beneficiaries may accordingly challenge gift conveyances if they hold clear evidence or a reasonable suspicion that someone forced or pressured the testator into giving away their future inheritance.
Q: How can I show the donor intended to donate to me?
A: Donees can protect their inter vivos gifts from probate litigation by allowing a seasoned estate and trust attorney to document the transfer. Doing so provides the donee with clear evidence that proves the donor held capacity to make the gift and intended to relinquish full control of the property upon the donee’s acceptance of the delivery.
Q: What types of deliveries will vest my ownership rights in inter vivos gifts?
A: In Gray v. Watters (Iowa 1952), the Supreme Court of Iowa affirmed that an absolute transfer of ownership title can only occur if the donor successfully delivers the inter vivos gift to the donee, since without this the property conveyance the would be an ordinary testamentary bequest. The court further held donors can deliver their inter vivos gifts: actually (i.e. physically bringing the property itself); implicitly (i.e. delivering the keys to property); or symbolically (i.e. offering a deed in lieu of the property)
Q: Once a donor delivers the inter vivos gift, can he or she still enjoy the property?
A: Donors must relinquish full control and enjoyment of their gifts after the donee accepts deliverance—otherwise it’s not a valid inter vivos transfer. For example, Grandpa Paul gifts his grandson the family homestead, but on condition that grandson allows him to use the land to hunt on the weekends. Grandpa will obtain a direct benefit in exchange for the transfer (valid consideration); hence, the courts will most likely treat Grandpa Paul’s conveyance more like a contract than a gift.
Q: Can donors take back an asset after giving it away?
A: Properly executed inter vivos gifts are absolute and irrevocable—the donor cannot reclaim the gift after delivery. Deathbed gifts on the other hand are mostly conditional and only take effect upon the death of the donor who has the power to revoke the gift at any time while he or she is still alive.
Q: How does an inter vivos gift differ from a deathbed gift?
A: Besides inter vivos gifts being irrevocable and causa mortis gifts being reversible, the testator’s “anticipation” of an impending death must be the reason for giving an estate asset on a deathbed. Causa mortis gifting accordingly only passes an “incomplete title” to the donee, meaning it doesn’t vest until the donor dies—different from inter vivos gifts that vest absolutely upon delivery and acceptance. Also, because the donee’s title is imperfect, a conveyance with a mere “expectation” of death is insufficient, since the donee’s property may never vest under this condition.
Q: When can I expect to receive my testamentary gift?
A: Iowa probate courts treat testamentary gifts like regular estate assets awaiting distribution once debts are settled and all taxes are paid. The provisions found in the deceased’s estate planning documents subsequently determine when and how donees will receive their testamentary gifts—estates can take one to three years to distribute gifts to donees and even longer if will dispute litigation arises during probate.
Q: Should fiduciaries except inter vivos gifts?
A: Fiduciaries or individuals who formed confidential relationships with donors before they died should avoid accepting gifts. Even when fiduciaries document their gifts properly, they will almost certainly face expensive fiduciary litigation or a tortious interference with inheritance lawsuit brought by interested parties once the donor’s will enters probate.
Q: What happens in court when someone sues me for taking an inter vivos gift?
A: The Supreme Court of Iowa held In the Matter of Estate of Todd (Iowa 1998) that challengers who bring lawsuits to revoke inter vivos transfers must prove their case through presentation of “clear, satisfactory and convincing” evidence. If however the donee was a fiduciary or a party in a confidential relationship with the donor, the burden would then shift to the donee to prove that their gift was valid using the same higher standard of evidence.
Q: What lawsuits can squash the donee’s right to gift ownership?
A: The courts may set aside testamentary gift transfers when an interested party’s estate dispute action successfully invalidates the deceased’s will. A probate judge may likewise revoke an inter vivos gift conveyance if the challenger proves the donor did not possess testamentary capacity to bequest estate property to another. Unfavorable lawsuits against donors accordingly will require the losing party to return the gift to the estate or pay restitution to the prevailing interested party.