Traditional Gifts: Avoiding the Pitfalls of Generosity

As the holiday season approaches, many people want to mark the occasion by giving gifts to their loved ones. Whether it’s a sum of money, a piece of jewelry, a work of art, or even a car, these acts of generosity may seem inconsequential. However, behind the apparent simplicity of customary gifts lie strict tax and legal rules. 

Giving a gift of a certain value may, under certain conditions, be reclassified as a traditional gift, leading to consequences that are sometimes unexpected. Here’s a breakdown of the pitfalls to avoid and best practices for giving gifts with peace of mind.

The customary gift: a definition worth understanding
Acustomary gift is a present given on the occasion of a specific event, such as a wedding, birthday, birth, or Christmas. This gift benefits from favorable tax and legal treatment, provided it meets two essential criteria:
 

1. A specific event: The gift must be related to a clearly identified family or social occasion.
 

2. A reasonable value: The value of the gift must remain reasonable, given the donor’s net worth and income. Unlike traditional gifts, there is no specific threshold, which leaves room for subjective judgment.
 

When both of these conditions are met, a customary gift is exempt from gift tax and will not be included in the donor’s estate. However, if either condition is not met, the gift could be reclassified as a donation, with all the resulting tax obligations.

Pitfalls to Avoid
While a customary gift may seem simple at first glance, there are several pitfalls to avoid in order to prevent future complications.
 

1. A value that is too high
The proportionality between the value of the gift and the donor’s net worth is a key consideration. What is considered reasonable for one wealthy person might be deemed excessive for another. For example, a diamond bracelet or a sports car may be classified as customary gifts if the giver’s net worth is sufficient to justify such generosity. On the other hand, a person with modest income who gives a gift of disproportionate value risks having it reclassified as a gift for tax purposes.
 

2. The absence of a specific event
A gift must be linked to a recognized occasion to be considered a customary gift. Thus, regular bank transfers—even modest ones—or donations without an explicit justification may not meet the criteria. Case law shows that gifts made without reference to a specific event, such as a birthday or wedding, are often reclassified. For example, a donation of €9,600 made close to a birthday was rejected as a customary gift due to a lack of clear evidence of the occasion.
 

3. The Regularity of Gifts
A customary gift is distinguished by its exceptional nature. If a gift becomes regular (for example, monthly or quarterly payments), it loses its one-time nature and may be treated as a conventional gift. Judges have already invalidated quarterly transfers of €2,000 to €3,000 due to their regularity.

Concrete examples from case law
Case law offers several examples to better understand the criteria for a customary gift:
• Accepted: A Renault Alpine given to celebrate the completion of studies or watercolors valued at 11,000 € given at a wedding were deemed proportionate to the donor’s assets.
• Rejected: Regular bank transfers or gifts made without explicitly stating the occasion, even if they are of a reasonable amount, have been reclassified as standard gifts.
Furthermore, the value used to assess a customary gift is the value at the time of the gift. For example, a person who gave watercolors valued at €11,000 at a wedding was not taxed, even though these works were resold 10 years later for €860,000.

Best practices to avoid mistakes
To avoid any disputes, it is essential to follow certain rules:
• Explicit mention: When making a bank transfer, specify the occasion for the gift in the description field, for example, “Merry Christmas” or “Congratulations on your wedding.” This detail can make all the difference in the event of a tax audit.
• Grouping gifts: Rather than making regular donations, it is preferable to concentrate them on two or three key times of the year, such as Christmas or a birthday. This reinforces the one-time nature of the gift.
• Caution in Valuation: Ensure that the value of the gift is reasonable in relation to your net worth. Excessive generosity can quickly be reclassified as a gift.

When a Customary Gift Becomes a Traditional Gift
If the criteria for a customary gift are not met, the gift will be treated as a traditional gift. In this case, it will be subject to a progressive gift tax schedule after the application of statutory exemptions. These exemptions, which are renewable every 15 years, vary depending on the family relationship between the donor and the recipient. For example, a parent can transfer up to €100,000 to a child without incurring gift tax.

Gifts remain an excellent way to pass on a portion of one’s estate without formalities or taxes, but they require a certain degree of care. Unsupervised generosity can lead to complications, particularly in the event of a tax audit or an inheritance dispute. To avoid pitfalls, it’s best to seek the advice of a notary or a wealth management expert. Give, yes, but always with peace of mind.