When we hear gift giving, we tend to think of Christmas, birthdays, graduation ceremonies and other occasions gifts are exchanged. Seldom do we think of legal ramifications which may be triggered by the delivery of a gift.
When a gift is of exceptionally high monetary value, gift giving can become more complicated than normal. Gruen v Gruen (1986) is an interesting case involving the transfer of a valuable piece of art. The ruling of the case clarified some of the uncertainty around the question of what constitutes proper or “valid” delivery of a gift.
Gruen v Gruen: The Case
The father, Victor Gruen, attempted to gift an oil painting by Gustav Klimt to his son, Michael Gruen, in 1963. The father wrote his son a letter in which he explained that, he wished to transfer title of the gift, but retain physical possession of the painting for the duration of his life. In other words, the father wanted to retain a life estate in the painting. Victor Gruen was advised against this by his lawyer and accountant. However, he wound up writing another letter to his son regarding the gift but failed to mention the life estate.
When Victor passed and Michael’s stepmother tried to claim the painting, the two wound up in court. The issue became, is it a gift if the recipient never physically owned it?
Court rules in favor of the son
The court (the Supreme Court of New York) ruled in favor of the son. The son was attempting to establish ownership of the painting against another relative (Michael Gruen’s stepmother).
The court found the father made a valid transfer of ownership, despite his lifetime interest in the painting. If someone wishes to transfer ownership of property specifically after their death, a will is required; the court reasoned that in this case present transfer of ownership occurred because there was a clear donative intent to bestow ownership upon the son.
At the time the case was being tried, the painting by Klimt was worth approximately 2.5 million dollars. The father was afraid his son would have had to pay inheritance taxes on the gift if he (the father) continued to hold possession of it for the remainder of his life. As it turns out, his fear was without basis.
Gruen v Gruen shows that it is possible to make an inter vivos gift even without physical delivery of the property. As long as there is donative intent, physical or constructive delivery, and acceptance by the receiving party, a valid gift has been made.
Image by Ferenc Keresi