Photo of Eric R. Ebbert, CFP®, MBA, CEO Eric R. Ebbert, CFP®, MBA, CEO Apr 06, 2022

What is a gift letter? If you are planning on making a large financial gift, or you are receiving one, then gift letters are an important part of that process. A gift letter is a formal and legal piece of documentation that explicitly states that a friend or family member gifted you a sum of money, rather than loaned it to you. 

While this distinction may not seem like a big deal to you, gift letters are legally binding documents that can have major consequences on your finances. Gift letters are intended to differentiate between loans and gifts but, when used improperly, may lead to fraud. That’s why it’s important to seek help from a financial advisor when giving or receiving large financial gifts.

What do I need to know about financial gift letters?

  • They are legally binding — While giving a family member a financial gift may not feel like a big deal to some people, gift letters are not only a formality. They are a legally binding document that both parties must sign. 
  • Large gifts require them — Small financial gifts may not require a gift letter to be signed. However, the amount necessary to need a gift letter depends upon the income of the person receiving the gift. Any gift you receive that’s over half the value of your household monthly income will require one.
  • Lenders need proof of financial gifts — The main purpose of gift letters is to allow lenders to gain an accurate view of your finances before offering you a loan. If a family loans you a large amount of money for a down payment, the lender may see that debt as a sign that you will not be able to repay the loan. Specifying that money as a gift rather than a loan makes you a more appealing candidate for a loan.
  • Intention is important — Both parties need to sign a gift letter with the full intention that the money will never need to be repaid. Accepting a large financial gift and signing a gift letter while intending to use the money as a loan is a form of mortgage fraud.

What should I do if I need help making a large financial gift to a friend or family member?

Large financial gifts need to be handled carefully, even when given with the best intentions. That is why experts recommend that gift givers meet with a qualified financial advisor when they plan to give a large financial gift. This can save gift givers as well as receivers a lot of time and worry, and helps to avoid the potential for accidental fraud.

Talk to a ProVise CFP® professional about gift letters for friends and family

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 

100% of the fee paid.

Are you ready to talk to a professional about safe and legal financial gift giving? Contact ProVise today to schedule a complimentary consultation.