A gift deed, or deed of gift, is a legal document voluntarily transferring title to real property from one party (the grantor or donor) to another (the grantee or donee), typically between family members or close friends. Gift deeds are also used to donate to a non-profit organization or charity. The deed serves as proof that the transfer is indeed a gift and without consideration (any conditions or form of compensation).
The vast majority of gift deeds are irrevocable, and in order to be valid they must meet the following requirements: The grantor must intend to make a present gift of the property, the grantor must deliver the property to the grantee, and the grantee must accept the gift. The deed must contain language that explicitly states no consideration is expected or required, because any ambiguity about or reference to consideration can make the deed contestable in court. A promise to transfer ownership in the future is not a gift, and a deed that does not immediately transfer the interest in the property, or meet any of the aforementioned requirements, can be revoked [1].
Unlike a will or a transfer on death deed, gift deeds transfer ownership of real property while the grantor is alive. A will is subject to revision and must undergo probate, which means it can be contested, whereas a gift deed cannot be contested by either the grantor or the grantor’s family once it is signed and delivered.
A lawful gift deed includes the grantor’s full name and marital status, as well as the grantee’s full name, marital status, mailing address, and vesting. Vesting describes how the grantee holds title to the property. States vary in the types of vesting they recognize, so it is advisable to check each individual state’s vesting policies.
As with any conveyance of real estate, a gift deed requires a complete legal description of the parcel. Recite the source of title to establish a clear chain of title, and detail any restrictions associated with the property. Record the completed deed, along with any additional materials, in the recorder or clerk’s office of the county where the property is located. Contact the same office to verify which additional materials are necessary, as well as the accepted forms of payment.
Note that gift deeds for property held in joint tenancy, tenancy by the entirety, or survivorship community property must be signed by all grantors and their spouses (if any). This ensures that all parties are aware of and authorized the transfer. Spouses must sign to release their marital rights, regardless of whether or not they have any actual interest in the real estate identified in the gift deed.
The grantor is responsible for paying the Federal Gift Tax, as well as the State Gift Tax, if applicable. The IRS implements a Federal Gift Tax on any transfer of property from one individual to another with no consideration, or consideration that is less than the full market value. As of 2017, individuals are permitted an annual exclusion of $14,000 on gifts. Update: Individual gift deduction is $15,000 for 2021. This means that if a gift is valued below $15,000, it does not require filing a federal gift tax return (Form 709). However, if the IRS could possibly dispute the gift’s value, which could happen with real property, a grantor may benefit from filing a Form 709 [2].
With gifts of real property, the recipient of the gift (grantee) is not required to declare the amount of the gift as income, but if the property accrues income after the transaction, the recipient is responsible for paying the requisite state and federal income taxes [3].
View Available Gift Deed Forms
This article is provided for informational purposes only and is not a substitute for the advice of an attorney. For questions regarding federal and state taxation laws, consult a tax specialist. Contact a lawyer with any questions about gift deeds or other issues related to the transfer of real property.
[1] https://nationalparalegal.edu/public_documents/courseware_asp_files/realProperty/PersonalProperty/InterVivosGifts.asp
[2] http://msuextension.org/publications/FamilyFinancialManagement/MT199105HR.pdf
[3] https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes