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Posted on February 21st 2006 in Legal Articles

The Legalities of Gift Giving

The Legalities of Gift Giving

You get the most of what you need the least!
Murphy’s Law of Gifts

With the holiday season upon us, we thought this would be a good time to discuss gifts and yes – the law. Believe it or not there are a variety of legal rules respecting gifts and gift giving. In this article we offer you a pot pourri of information about this topic.

What makes a gift a gift?
A gift is a voluntary transfer of money or property for which the giver or donor receives nothing of value in return. The giver must be competent and must actually own the property that he or she is giving away. In addition, the giver must permanently part with the property. The gift must be delivered to and accepted by the recipient or donee. Therefore a mere promise to give someone something is not sufficient.

Will the courts enforce the promise of a gift?
A gift that has not actually been delivered is merely a gratuitous promise, which means there has been no consideration and no contract. Therefore, unless the promise is formally written down in a deed that has been signed, sealed and delivered, the promise remains unenforceable.

Is a gift made in contemplation of death valid?
A gift made in contemplation of one’s death and which is intended to take effect upon the death, will be valid, however it must have been delivered prior to the death.

John shared a house with his daughter, his brother, his mother and his sister, Jane. The house was owned by Jane. On more than one occasion Jane had told John that the house would eventually be his. Her promises escalated when she ended up in the hospital stricken with cancer. Despite her promise to make a deed, she never did. Several months later, she died without a will. The court concluded that the house did not belong to John because it had never been delivered to him by way of a deed and in fact there had never even been instructions for the preparation of a deed.

Who gets the ring if the engagement is called off?
The answer depends on who initiates the break up. If it is the man, then the woman is allowed to keep the ring. However, if the woman calls it quits, then she must return the ring. While this rule applies to all gifts that are related to an engagement, it does not apply to the “regular” gifts that were made during the engagement – birthday and Christmas gifts for instance.

How are gifts treated by Revenue Canada?
Generally speaking the recipient of a gift does not pay tax on the gift. This includes gifts received pursuant to a will as well as the proceeds of an insurance policy. However, a gift of property is deemed to have been received at fair market value, which means you may have to pay capital gains tax if you later dispose of the property.

If you are the donor and you give money or property to certain institutions, including registered charities and the various levels of government, you may be able to claim federal and provincial or territorial non-refundable tax credits. If you donate cultural property to a designated institution or a public authority you can claim a tax credit equivalent to the fair market value of the property. Bear in mind that if you plan to give away property, any capital gain you have made on the property since you acquired it may be subject to tax. (For more information contact the Charities Directorate at (613) 954-0410 or 1-800-267-2384.)

Is a store obligated to take back a gift that you don’t like?
Stores are not obligated to accept returns – even if you have the receipt. Whether to accept returns or exchanges is entirely up to the individual store. However, stores generally accept returns because it makes good business sense.

We hope this information has shed some new light on the subject of gifts. If you are thinking of making a significant gift to a person, charity or other institution, you should consider getting professional advice in order to do it in the most advantageous way possible for both you and the recipient.