A GIFT DECLARATION
The Best Thing You Can Give Yourself and Your Client
By Gregory Wilcox, Esq.
Elder law practitioners and public benefit planners, as well as special needs advocates and estate planners in general, often advise their clients to make gifts of their assets. But the mere transfer of an asset is usually not enough to constitute a gift.
For example, mom transfers a large amount of her cash to her son. What is it? Is it a loan, compensation for son’s services, to be held for mom in trust, some sort of sale, or . . . a gift? There is no way to know from the bare fact of the transfer. Even if there is a document of title, like a deed or “pink slip” for a car, it will usually not answer questions about the nature of the transfer.
According to the Summary of California Law (aka, Witkin), there are three requirements for a gift. First, there must be “donative intent,” or in common English, an intent to make an unconditional gift. There must also be actual or symbolic delivery and finally, acceptance by the donee. Delivery is shown by an act demonstrating that the donor has given up control, e.g., by the transfer of title, and proof of delivery is usually easy. The third requirement, acceptance of a beneficial gift, is presumed as a matter of law. So in most cases we are left only with having to prove “donative intent.”
All ambiguities about donative intent can be avoided through the simple expedient of requesting the donor to sign a document stating that the transfer of assets is intended to be an irrevocable gift. I call the ones I write, “Gift Declarations,” since that name is not likely to be misinterpreted.
However, over time I have found that such documents are a handy means of taking care of a number of other related issues. There is a model Gift Declaration below, and then some comments providing the reasons and hoped for impacts of each component.
I, the undersigned, _______________, declare:
- I am a widowed single man/woman. I have __________ adult children now living, whose names and residences are ________________. I also have other family members, ________________, of ___________, California.
- I have recently had problems with my health and may eventually/now require long-term institutional care.
- In light of my circumstances, I wish to make gifts to certain donees in the amounts and on the dates described on Attachment 1, attached hereto and incorporated herein.
- I make this declaration to confirm my intention that such transfers were intended to be irrevocable gifts to the donees. None of them has any fiduciary or other duty to apply such assets, or the income from such assets, for my benefit. I retain no authority of any kind to divest the donee of such gifts. These transfers are true gifts, and are not given in trust, as a loan, or as compensation for services or in consideration in any kind of sale.
- I make this declaration of my intention with regard to such gift transfers of my own free will, and influenced only by my own personal desires. I have had the independent legal counsel of my attorney, ________________________, before executing this document. S/he has explained to me the following:
- a. The rights, duties, and responsibilities created by, or affected by this decision.
- b. The probable consequences for me and other persons affected by the decision.
- c. The significant risks, benefits, and reasonable alternatives involved in this decision.
I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct and that this Declaration was executed in the City of ________________, California, on _____________________, 2010.
[ACKNOWLEDGMENT TO NOTARY]
1. Its form is a declaration, so it’s signed under penalty of perjury like any other declaration. However, the purpose of the declaration is really to confirm intent rather than correctness. On the other hand, the declaration window dressing probably adds some weight to the document. Furthermore, the statements about having independent legal representation are important and provable factual statements. If the Declaration is signed by an agent rather than the donor because of the legal incapacity of the principal/donor, it should be a declaration of the agent (since it doesn’t make much sense for the agent to be making allegations about the “intent” of an incapacitated donor).
2. Paragraphs “1.” and “2.” are meant to provide a context for the gift, giving some evidence of the donor’s awareness of his or her family and financial circumstances, and therefore of legal capacity, at the time the document is signed. Of course, this could easily be expanded as the situation requires.
3. Paragraph “3.” establishes that the gifts are motivated by the foregoing circumstances, again providing for both a rationale and further evidence that the transfer is rational. The language of “gifts” and “donees” is prominent. Rather than lose the impact of the Gift Declaration in a detailed explanation of a complicated series of transfers, the Paragraph simply refers to an attachment where the numbers, dates, and names are all located. As a result, the Declaration is always in two parts: the statement of intent and an attached statement of what the intent applies to.
4. Paragraph “4.” is the core of the Declaration, where all characterizations for the transfer other than gift are denied, as well all reasonably likely conditions on the gift.
5. Paragraph “5.” is an important additional component. When the donor makes a gift of substantial assets, he or she should have independent legal advice (and if the donee is your client that independent legal advice cannot come from you). Reported cases are full of compromising situations where the “independent legal counsel” had some existing or prior relationship with the donee. This is not a taint you should allow or a risk you should take. I tell my clients that the donor just has to spend the few hundred dollars necessary to retain some other attorney who is a stranger to the situation.
Remember that Medi-Cal eligibility workers are “mandated reporters.” That is, they are mandated by law to report potential elder abuse to adult protective services or law enforcement. They are taught to interpret recent major gifts and changes in estate plans as red flags pointing to elder abuse. Your job if you represent the donee is to provide a bullet-proof defense against any such claim. A record of independent legal advice is the best defense of all. When I tell my reluctant clients who are prospective donees that they might be investigated for elder abuse unless the donor has independent legal counsel, they usually begin to see the light.
In fact there are three different legal challenges that can be leveled against the gift. There’s the elder abuse challenge described above. Second, there is a similar legal challenge based on undue influence. Proof of undue influence requires (among other things) that there be evidence of that the donor did not exercise independent judgment, but rather felt compelled to agree because of the donee’s influence. If the attorney providing the independent legal advice meets privately with the donor, invites the donor to express his or her motives, and concludes that the gifts are freely made, it’s hard to imagine a successful later attack based on undue influence.
Third, those who have an interest in challenging the gift can claim that the donor lacked legal capacity. My way of dealing with this is to list verbatim the criteria for legal capacity laid out in Probate Code §812. This set of criteria then provides a convenient checklist of discussion points for the independent attorney counseling the donor, and a guide to his or her notes on the consultation. A detailed set of lawyer’s notes of the discussion of these points ought to defeat any challenge alleging lack of legal capacity.
6. “Attachment 1" is a convenient place to lay out the gift plan. If the plan is to fragment gifts for Medi-Cal eligibility purposes, the attachment should list the date for the gift transfer, the amount, and the name of the donee. Attachment 1 can then be used by the donor as a checklist to carry out the gifts. In my experience Attachment 1 often goes through a number of revisions, while the Gift Declaration itself usually only needs to be revised to include the name of the donor and the name of the donor’s independent attorney.
A Gift Declaration is a convenient single place to establish convincing proof of donative intent, legal capacity, and freedom from both undue influence and elder abuse. Its attachment provides a handy checklist to monitor completion of a gift plan. It’s short. It’s cheap. It can be given to the Medi-Cal eligibility worker to explain and document earlier gifts. It’s hard to think why practitioners would not want to use a Gift Declaration in every case involving gifts.