What Is a Gift Causa Mortis and How Does It Affect Finances?

A gift causa mortis occurs when someone transfers property in anticipation of their passing. Unlike standard gifts, these transfers come with legal and financial conditions that affect ownership, taxation, and estate planning. Understanding these distinctions is crucial for both the giver and recipient to prevent complications.

These gifts differ from lifetime gifts and inheritances, impacting estate accounting, taxation, and revocation. Courts scrutinize them closely, and disputes are common, particularly when heirs or creditors challenge the transfer.

Essential Conditions

For a gift causa mortis to be legally valid, specific conditions must be met. If any are missing, the gift may be challenged and reclassified as part of the donor’s estate.

Imminent Prospect of Passing

The donor must be facing an immediate and tangible risk of death, such as a severe illness or life-threatening event. A general acknowledgment of mortality is insufficient. Courts have invalidated gifts when the donor was not in immediate peril at the time of transfer. If the donor recovers, the gift is automatically revoked.

Intent to Transfer

The donor must clearly intend to transfer ownership, contingent on their death. This intent can be verbal or written but must be unambiguous. Courts scrutinize these cases, especially when competing claims arise. If intent is unclear, the gift may be deemed invalid and included in the estate. Witness statements, medical records, or notarized declarations can help establish intent.

Actual or Symbolic Delivery

The asset must be physically or symbolically transferred, signifying relinquishment of control. Physical delivery applies to items like jewelry or cash, while symbolic delivery might involve handing over keys to a safe deposit box or signing a deed. Mere promises or future intentions are insufficient. Courts have rejected claims when the donor retained control over the asset until death. The donee must be able to access the asset without further action from the donor.

Donee’s Acceptance

The recipient must accept the gift while the donor is still alive. Acceptance is generally presumed unless there is evidence to the contrary. Disputes can arise if the donee was unaware of the transfer or explicitly refused it. Some courts have invalidated gifts when the donee did not acknowledge receipt before the donor’s passing. Written acknowledgment, possession of the item, or witness testimony can confirm acceptance.

Differences from Traditional Gifts

A gift causa mortis remains conditional until the donor’s passing, unlike standard gifts, which are irrevocable once given. If the donor recovers, the gift is revoked. This distinguishes it from inter vivos gifts, which are finalized upon delivery and cannot be taken back without the recipient’s consent.

While ordinary gifts may require minimal documentation, gifts causa mortis face greater scrutiny due to their connection with end-of-life decisions. Courts frequently assess whether the necessary elements were met, and legal challenges are common. Written records or witness testimony can help reinforce intent and prevent disputes.

Financial implications also differ. Traditional gifts made during a donor’s lifetime do not revert to the estate upon death and are not subject to estate settlement procedures. A gift causa mortis, however, may be subject to creditor claims if the donor’s estate has outstanding debts. Because these gifts are often made in urgent situations, they can lead to unintended tax or liability consequences.

Estate Accounting Treatment

A key issue in estate accounting is whether the asset should be included in the estate’s balance sheet. If the transfer is incomplete or improperly documented, the asset may be reabsorbed into the estate and subject to probate, altering how wealth is distributed among heirs and beneficiaries.

Executors must also assess the impact on estate liquidity. If a high-value asset, such as real estate or securities, was transferred shortly before death, they must determine whether the estate retains enough liquid funds to cover debts and administrative expenses. If creditors challenge the transfer, estate representatives may need to recover the asset to satisfy liabilities. Under the Uniform Probate Code, creditors generally have priority over non-probate transfers if the estate lacks sufficient funds to settle debts.

Estate accountants must document any disputes or claims related to these gifts. If an heir or creditor contests the validity of the transfer, financial statements may need to reflect contingent liabilities or potential recoveries. A properly maintained estate inventory should include both confirmed assets and those under legal review. Executors often rely on forensic accounting to trace asset ownership history, particularly for complex holdings such as business interests, intellectual property, or investment portfolios.

Tax Consequences

Tax treatment for a gift causa mortis depends on its classification under federal and state tax laws. While lifetime gifts are typically subject to the federal gift tax, gifts made in anticipation of death are often treated as testamentary transfers and included in the decedent’s taxable estate. Under the Internal Revenue Code, assets that remain under the donor’s control until death are part of the gross estate and subject to estate tax. This can significantly impact tax liability, particularly for estates exceeding the federal exemption threshold of $13.61 million for 2024.

Because these gifts are considered part of the estate, they may qualify for the stepped-up basis provision under the tax code. This means the recipient’s cost basis in the asset is adjusted to its fair market value as of the donor’s date of death, potentially reducing future capital gains taxes if the asset is later sold. By contrast, traditional gifts retain the original cost basis, which could result in higher tax exposure for the recipient. If a donor transfers stock worth $500,000 that was originally purchased for $100,000, the donee’s basis under a gift causa mortis would reset to $500,000, eliminating significant capital gains tax liability.

Revocation Factors

A gift causa mortis remains revocable under certain conditions. If the donor recovers from the condition that prompted the gift, it is automatically revoked. Courts have consistently upheld this principle, emphasizing that these gifts are conditional upon death occurring as expected.

The donor can also revoke the gift at any time before passing, provided they are mentally competent. This can happen if they change their mind, need the asset for financial reasons, or determine the recipient is no longer suitable. Additionally, creditor claims or disputes from heirs can lead to a court invalidating the gift. If the donor had outstanding debts, creditors may argue that the asset should be included in the estate to satisfy obligations. Courts weigh the legitimacy of the gift against the estate’s financial responsibilities, sometimes ruling in favor of creditors to ensure debts are settled before distributions to beneficiaries.