What defines an incomplete gift in estate planning?

An incomplete gift in estate planning refers to a situation where the donor has not completely relinquished control or ownership of the gifted property. When a donor retains a life estate in the gifted property, they maintain the right to use and benefit from the property during their lifetime. This retained interest means the transfer is not fully consummated; rather, the donor still possesses significant rights over the property, which is why it is classified as an incomplete gift.

In contrast, other scenarios such as receiving income from the gifted property, selling the property shortly after the gift, or holding the property in trust for future beneficiaries do not necessarily indicate an incomplete gift status. The critical factor for determining whether a gift is complete involves assessing the donor’s interest and control over the property after the transfer. Retaining a life estate clearly indicates that the donor continues to have a significant interest in the property, which prevents the gift from being recognized as complete for purposes of estate and gift taxation.