A gift letter is a legal document that explicitly states a financial gift is being given from one individual to another. Such documents are typically used for large financial transactions, such as providing a down payment for real estate purchases. Gift letters can be an assurance from a lender that no loan money is being used to cover the costs of the purchase.

Letters must include the name and address of the donor, the name and address of the recipient, the amount of the gift, and a brief statement that the funds do not need to be repaid. The donor must also sign the gift letter indicating that he or she is providing a gift and not a loan.

It's important to include the amount of the gift in the gift letter, as this is a vital part of being able to prove the true nature of the transaction. This is especially important when it comes to one's finances, as the amount of money in question can be used to determine whether or not estate or gift taxes may need to apply.

For example, the federal estate and gift tax exemption for the year 2022 is $12,060,000 per individual, with this amount increasing to $12,920,000 for 2023. Stipulating the exact amount of the gift in the letter ensures that neither party involved is liable for related taxes on the money gifted.

Gift letters are a necessary and important tool for providing evidence that money received is indeed a gift that does not have to be repaid. Properly written and executed, these documents can help prove that all forms of payment for a large purchase or real estate transaction are both legitimate and in accordance with applicable taxes and other laws.