What happens to an asset if it is transferred to another person as a gift?

When an asset is transferred to another person as a gift, it is considered disposed of. This means that the original owner no longer has legal ownership of the asset, and it is no longer included in their net worth. The act of gifting removes the asset from the donor's financial statements, making room for the recipient to assume ownership.

Although the gift may continue to hold value or provide income, that responsibility and benefit now belong to the recipient, not the giver. This aspect is crucial because it directly impacts an individual's financial portfolio and calculations pertaining to net worth. The other options do not accurately reflect the implications of gifting an asset; for instance, the asset cannot still be counted as part of the original owner's net worth or contribute to their income since they have relinquished ownership.