Elements of a Gift

Take-Away: For a gift to be valid in Michigan, three elements must exist: (i) the donor’s intent to transfer property gratuitously; (ii)actual or constructive delivery of the property to the donee; and (iii) an acceptance of the transfer by the donee.

Background: With all the discussion these days about making large large gifts to children and grandchildren in anticipation of a substantial reduction of the federal gift tax applicable exclusion amount, it is important that the gift be respected as a completed gift for federal tax law purposes. Michigan law controls when a gift is made.

As noted above, for a gift to be valid and binding in Michigan, three elements must exist: (i) the donor must possess the intent to transfer title to the property gratuitously to the donee; (ii) there must be actual or constructive delivery of the subject matter to the donee, unless the donee is already in possession of the property; and (iii) the donee must accept the property. Davidson v. Bugbee, 227 Mich App. 264 (1997). A gift made during lifetime is not only immediate, but absolute and irrevocable. In re Casey Estate, 306 Mich. App. 252 (2014.)

Whether an individual has acted with donative intent is a question of fact: “The donor’s intention to make a gift need not be expressed in any particular form, and donative intent may be typically proven through oral testimony.” In re Rudell Estate, 286 Mich. App. 391 (2009.) 

Donor’s Intent: These legal principles were on display in a recent Michigan Court of Appeals decision, Springer v. Springer, Michigan Court of appeals No. 352647 (April 22, 2021) where the sole issue in dispute was whether a father intended to make a gift to his son.

Facts: A father and his son, Billy, had been estranged for most of Billy’s life. Billy lived in Michigan and the father lived in Tennessee. After several years of estangement, the two started a reconnection. The father offered to pay the purchase price on a new home so that Billy would not be forced into a ‘fire sale’ of his existing home, which the father testified to as ‘

He did not want Billy ‘to lose his house.’ The father proposed that the new home that Billy desired would be in both of their names, but that Billy and his family would occupy the home. Apparently they also discussed that Billy would inherit the home on the father’s death. While the father testified that there was an agreement that Billy would reimburse his father for one-half of the purchase price once Billy’s current home was sold, there was no documentation to establish this reimbursement arrangement.

Both the father and Billy signed the Purchase Agreement to acquire the ‘new’ home for a purchase price of $280,000. The father was the sole source of funds used to pay the purchase price. A warranty deed conveying title to father and Billy as tenants-in-common was executed in late January 2019. After a one week visit from the father to Billy’s current home in the spring of 2019, they had another falling out, and the father decided that he ‘no longer wanted a financial connection’ with Billy. The father never saw the ‘new’ home and Billy never paid any money towards the purchase price of the new home.

Dispute: The father sued Billy demanding that the ‘new’ home be sold, and that he be reimbursed the full $280,000 that he advanced to purchase the home. Billy claimed that he was gifted $140,000 (50% of the purchase price). Billy also denied any oral agreement to reimburse his father, once his current home sold.

Trial Court: After hearing testimony from the father, the trial judge dismissed his lawsuit. The judge found that the Purchase Agreement signed by both the father and Billy was an ‘delivery’ of the gift to Billy, and Billy’s name on the warranty deed was his ‘acceptance’ of the gift.

The sole issue that the trial judge decided was whether the father intended to make a gift. The trial judge found that such intent existed based upon the father’s trial testimony. He testified he had said to Billy at the time of their ‘reconnection’: “I may have a chance to do something for you [Billy] now. We didn’t get along for 10 or 11 years ago. Let’s try that again. I’d like to help you.” From that admission, the judge found that the father had intended to make a gift to Billy. The judge refused to partition the home (,i.e. a forced sale of the new home.) Rather, Billy was ordered to pay his father $140,000 within 120 days of the court’s order. The father appealed.

Court of Appeals: The Michigan Court of Appeals affirmed the decision of the trial judge that the father had intended a gift of a one-half divided interest in real estate to Billy. In support of this conclusion the Court found:

“Plaintiff’s [father’s] testimony demonstrates that because he had an estranged relationship for most of the defendant [Billy’s] life, he wanted to do something to help the defendant without expecting anything in return, which is evidence that the plaintiff intended to transfer title of the property gratuitously to the defendant. For these reasons, the trial court did not clearly err by finding that plaintiff intended to gift a one-half undivided interest in the property to the defendant.”

“Plaintiff intended to transfer title to the property gratuitously to defendant, there was delivery of the property to and the defendant accepted the gift. Therefore, plaintiff cannot revoke the gift after he decided that he no longer wanted to have a ‘financial connection’ with the defendant.”

Conclusion: It seems pretty obvious that for there to be a valid gift, there must be an intent to make the gift. However, as the Springer case suggests, a court may find such an intent from a few ill chosen words, e.g. I’d like to help you. If a parent is advancing funds to help their child, they would be well advised to document whether a gift is intended, or only a cash advance which both will view as a loan to be repaid. The Tax Court has made it clear that in intrafamily transfers, it will assume that a gift was intended, and not a loan.