If Someone Makes a Gift Just Prior to Death, is it Valid or Must it Be Brought Back into the Estate?

November 20, 2019

A gift is a property transfer without the expectation of payment. The donor intends to relinquish control of the asset without any expectation of receiving compensation, now or in the future. There must be some delivery of the gift and the recipient must accept the conveyance.  If someone makes a gift in anticipation of pending death, it could complicate the estate administration process.

The courts will analyze complex relationships of the decedent to determine if the gifts were made in good faith or as a result of undue influence. If any hallmarks of undue influence come to light,the gifts may be required to return to the decedent’s estate to be distributed according to the estate plan.

There are also issues involving estate taxes to be considered with deathbed gifting. Under federal law if an individual makes a gift of property within 3 years of the date of death, the value of the gift may be included in the gross estate for tax calculation purposes.

The impact of the three-year rule means:

1) a gift made within three years of death may be included in the donor’s estate, any gift taxes paid with respect to such gifts may reduce the amount to include, and 2) if the decedent possessed or retained a taxable interest or power with respect to certain property which would be included under another section of the tax code, the transfer or release of that power or interest within three years will be part of the gross estate. Were it not for this rule, the payment of related gift taxes would reduce the gross estate since if the decedent paid the taxes, the amount would not be in the estate, and the estate would be entitled to a credit.

Minimizing tax liability may be an important consideration when determining if and how to transfer property prior to death. If you are considering a gift in anticipation of death, it is important to consult with an experienced estate planning attorney. Administering an estate that includes recent gift transactions should also come under the advisement of an experienced attorney. For more information, contact Stouffer Legal at 443-470-3599 in the Greater Baltimore area.

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