How to Write a Gift Letter for a Large Sum of Money

A gift letter serves as a formal document confirming a financial gift has been given without any expectation of repayment. This written statement provides clarity and crucial documentation, particularly when a large sum of money changes hands. Its primary purpose is to establish that the funds transferred are indeed a gift, rather than a loan that would obligate the recipient to repay the amount. The presence of a clear gift letter helps to prevent future misunderstandings or disputes regarding the nature of the financial transfer.

Essential Information for Your Gift Letter

Before drafting the gift letter, gather specific details from both the gift giver (donor) and the recipient (donee). This includes their full legal name, current mailing address, and contact telephone number. Accurate details are important for the document’s validity.

The exact gift amount must be clearly stated, both numerically and in words, such as “$20,000 (Twenty Thousand Dollars).” Specify the date the gift was given or will be transferred. The letter must clearly affirm the money is a gift, not a loan, with no expectation of repayment or any lien or encumbrance on the recipient’s assets.

Structuring and Drafting the Gift Letter

Structure the gift letter in a clear, formal manner. Begin by placing the donor’s full name, address, and contact information at the top left. Include the date the letter is being written below this.

Next, provide the recipient’s full name, address, and contact details. A professional salutation, such as “Dear [Recipient’s Name],” should precede the body. The initial paragraph must clearly state the letter’s purpose: confirming the gift.

Explicitly state the exact gift amount, using both numerical and written forms, and specify the date the funds were or will be transferred. The letter must clearly declare the money is a gift, with no expectation of repayment or donor claim on recipient assets. Briefly mention the relationship between the giver and recipient, such as “my child” or “my grandchild,” for context. Optionally, state the gift’s intended purpose, like a home down payment, to further clarify its intent.

Conclude with a professional closing, such as “Sincerely,” followed by the donor’s typed full legal name. A wet signature from the donor is essential for authenticity. Witnessing or notarizing the letter can provide an added layer of credibility, though it is not a mandatory step for most gift letter purposes.

Key Considerations for Specific Gift Purposes

The content and strategic importance of a gift letter vary depending on the specific use of the large sum of money. Understanding these nuances ensures the letter fulfills its intended role effectively.

For Mortgage Applications

When a gifted sum is for a mortgage down payment, lenders have specific requirements. The letter must state the funds are a gift with no repayment expected, which lenders assess for the borrower’s debt-to-income ratio. Lenders often require details about the source of funds, including the donor’s bank statements. Some mortgage lenders may provide their own templates with precise wording. The gift letter documents the loan application, assuring the lender the down payment funds are not additional debt.

For Tax Documentation

For gifts exceeding the annual gift tax exclusion limit, the gift letter documents the donor’s tax records. In 2025, the annual gift tax exclusion is $19,000 per recipient. An individual can give up to $19,000 to multiple people without reporting it to the IRS. If a gift to any single recipient exceeds this amount, the donor is typically required to file IRS Form 709.

Filing Form 709 for gifts exceeding the annual exclusion does not automatically mean gift tax is owed. The amount exceeding the annual exclusion reduces the donor’s lifetime gift tax exemption, which for 2025 is $13.99 million per individual. The recipient does not pay income tax on the gifted funds. The gift letter substantiates the transfer as a gift, helping the donor report the transaction to the IRS and track their lifetime exemption.