If I buy an Apple iPhone 5 64GB from AT&T, do I have to activate it?

My 70 year old neighbor is giving me her AT&T upgrade because all she uses are flip phones she doesn't like touch phones. I originally wanted to get an iPod Touch 64GB but I would rather get the iPhone because if down the line I decide to use AT&T or a GSM provider I will already have a phone. My plan is to use her upgrade and buy a iPhone, but not activate it, I'm just going to use it as an iPod for now, maybe in the future I might use it as a phone. Can I do this? I know it will extend her contract another 2 years but she says she likes AT&T. WIll they charge her anything extra because the iPhone was never activated?

Right you can use it just with Wi-Fi and never use cell towers, thats like an ipod touch then. Obviously she needs to finish paying the contract no matter what phone she uses.