Conditional Gifts, Gifts by Minors & Mistake of Fact or Law When Gifting

In previous articles we have discussed incomplete gifts and the power to revoke, and how such matters could impact making a gift in terms of estate planning and estate tax.  The article below will continue to discuss related matters, but focus more on conditional gifts, gifting to a minor and a mistake of fact.  Please remember to always discuss your specific estate planning and tax matters with your estate planning attorney, tax attorney and/or tax advisor.

Certain states will recognize the doctrine of a condition gift.  If your applicable state does recognize the doctrine of a conditional gift, the conditional gift transfer can be incomplete for gift tax purposes.  General property law principals would hold that a gift is complete and irrevocable upon completion of the transfer and acceptance by the donee (individual receiving the gift).  Under the conditional gift doctrine, a “gift” however can be subject to a condition and thus the initial transfer would not be deemed a completed gift for purposes of state property law if in fact the condition is not satisfied.  Thus, if the gift is not a completed gift under state law, it may not be a completed gift for federal tax purposes- estate tax and for purposes of your estate planning.  In terms of cases dealing with this issue, see Ver Brycke v. Ver Brycke, 379 Md. 669, 84 A.2d 758 (Md. 2004).

Gifts by minors bring certain questions and issues into consideration as well.  Because a minor is legally incompetent, a minor makes a gift and transfers property to another person the transfer may be disavowed by the minor, and the ability to disavow could cause the gifted property to go back to the minor who gifted the property.  Thus, is this a completed gift when a minor transfers property?  A gift by a minor is incomplete for federal gift tax purposes if under the applicable state law, the gift can be reverted back to the donor for a reasonable time after the minor has reached the age of majority in the applicable state.  Under these circumstances, the gift from the minor would be considered complete when the minor’s power disavow the gifted property lapses and the minor can no longer “take back” the property.

If a grantor has made a unilateral mistake of fact or law, a gift into trust can be considered incomplete if state law would allow for the revocation  For example, if a donor incorrectly transferred the incorrect (or unanticipated) amount of property, the transfer could be considered incomplete and not subject to gift tax.  However, it is important to note that a mistake as to the tax consequences of a gift will generally not allow the gift to be considered an incomplete gift.

The gifting of property can be an important part of estate planning, but has many tax implications and issues to consider.  Thus, it is important to discuss gifting issues with an estate planning attorney or tax attorney.  You can speak with a Denver estate planning attorney and tax attorney by contacting the McGuire Law Firm.

Contact The McGuire Law Firm to schedule a free consultation with a Denver tax attorney and estate planning attorney!

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