2012 Gifting—When is a gift actually complete?

Many clients are doing year-end gifting this year. We have an unusually large gift tax exemption and thus the additional ability to gift without tax implications, and we are facing unknown tax laws going forward.  You may or may not be gifting assets, or receiving assets by gift, but I thought this might be a good opportunity (albeit boring—unless you are receiving a large gift this year) to discuss what it means to actually complete the gift by the end of 2012.

• Cash and checks—a gift of cash or checks is complete when the transfer of funds is complete or when the check is cashed.

• Real estate—a deed (warranty deed or quitclaim deed) is necessary to transfer the property. The gift is complete when the deed is delivered to the recipient or recorded in the appropriate county.

• Stock in a company—a decision to make the gift, or even a letter, is not sufficient.  There must be an Assignment Separate from Certificate with the stock certificate, or an endorsed stock certificate, to complete the gift of stock. The gift is complete when the assignment or endorsed certificate is delivered to the recipient or an agent of the recipient, but not if it is merely delivered to the agent of the person making the gift.  The agent of the recipient could be a transfer agent, but often either (1) there is no such thing for a closely held company, or (2) that transfer agent is considered an agent of the person gifting and not the recipient.  The other way to determine if the gift is complete is if the transfer is recorded in the company records.  Be sure to check buy-sell agreements or other documents for transfer restrictions.  If a transfer is done in violation of any such restrictions, it could be considered void even if it is otherwise complete.

• LLC’s/Partnerships—as is the case with the transfer of corporate stock, an assignment with an acceptance from the recipient will complete the transfer of interests in an LLC or partnership.  The gift is complete when control is transferred to the recipient. Again, consult the transfer restrictions or requirements applicable to new members in the company’s documents to be sure you comply with those requirements as well.

In addition to completing the steps outlined above, it is important after the fact to treat the asset that has been given as a gift as having been transferred.  For real estate, it is important to treat property as if the new owners have complete control.  Change the insurance, execute a lease to use the property, change the property tax information.  With stock or interests in LLC’s and partnerships, the company records should reflect the change, distributions should go to the new owners, any guaranties should be negotiated, new members should be added to the buy-sell or other corporate documents, and K-1’s should be prepared for the new owners.  Also, report these gifts on a gift tax return.  If you are gifting in 2012, or really any year, be sure to meet the reporting requirements with the IRS and have your attorney or accountant prepare a gift tax return in April of 2013.