Will vs Gift deed: Planning for eventuality vs. generosity

Kabir and Anaya, a working couple and an entrepreneur, want to distribute their assets to their children. But Kabir opted for a Will as a tool of Succession planning, and Anaya opted for a different method, a Gift deed.

Both methods exist to help you pass on your assets; you need to choose your method wisely.

A fundamental aspect of estate planning is understanding the differences between a Will and a Gift Deed. While both legal instruments relate to the transfer of assets, they serve different purposes and operate in different circumstances. 

A Will states the distribution of their assets and becomes effective only after their death. 

On the contrary, a gift contract facilitates the immediate property transfer from the donor to the donee during the donor’s lifetime without any monetary exchange. 

Importance of a Will

• A will ensures that a person’s property and assets are distributed according to their specific wishes after death. This can help prevent disputes between family members and ensure that the intended beneficiaries receive their rightful inheritance.
• This provides peace of mind, knowing that their children will be cared for by someone they trust because you can appoint a legal guardian in Will for your minor children.
• Without a will, the distribution of property is determined by intestacy laws (e.g., as per the Hindu Succession Act for a no-will situation, the wealth of a male person shall be first distributed to his mother (if living), wife, and all sons and daughters (including married) equally), which may not be as per your wishes. A will provides control over who inherits what.
• A will can state the specific items or amounts to be given to specific individuals or organizations, allowing for sentimental or charitable bequests. Kabir opted for the Will and distributed his assets to his two children and wife and some to charity as per the will, which will come into effect after his death. During his lifetime, he can enjoy the assets. 

Importance of a Gift Deed:

• Immediate transfer of property: The gift deed allows the immediate transfer of property from the donor to the donor during the donor’s lifetime. This is especially important when it comes to estate planning or gifting real estate to a loved one. 
• Gift transfers must be voluntary and without consideration. Even if there’s partial consideration, it would be considered a Sale, not a Gift. 
• Tax planning: Gift certificates can be used as a tax planning tool. Depending on local tax laws, gifting property may be beneficial. 
• Express Your Generosity: A gift certificate allows a person to express their generosity and help a loved one or charity during their lifetime. Anaya wanted to ensure that her 3 BHK flat should be with her married daughter without any hassle. She opted for a gift deed to help her loving daughter to enjoy the asset during her lifetime. 

What is the Difference between Will and a Gift Deed?

A “will” and “deed of gift” are legal documents used in estate planning, but they serve different purposes. The differences between a Will and a Gift Deed are as follows:

	Will	Gift Deed
Purpose	A will is a legal document that determines how a person’s property and assets will be distributed after death.	A gift deed is a legal document that is used to transfer the ownership of personal or immovable property from one person (donor) to another (donor) without exchanging money or any consideration.
Immediate Transfer	A will becomes effective only after the death of the maker (testator)	Unlike a will, a gift deed becomes effective upon execution and registration (where required by law).
Revocability	Assets transferred through Will cannot be revoked	Assets transferred through a gift deed become void if the conditions mentioned are not met.
Tax Implication	The tax implication has nothing to do with a Will.	There may be tax implications on gifts received by any person under the head ‘Income from other sources’ at normal tax rates. Tax implications depend on various factors like type of gift i.e. movable or immovable asset and the relationship of donor and donee.  Blood relatives get certain exemptions.
Stamp Duty	There is no stamp duty payable for the registration of a Will. The nominal Govt. fee is charged at the Sub-Registrar office.	There is mandatory stamp duty on registration of gift deeds, which may vary depending on the jurisdiction and the value of the property. Ex: In Telangana state, the stamp duty is approximately 3.6% of the property value.
Registration	There is no compulsion to get the will registered, but it would be recommended that you do so.	Gift deeds must be registered with the relevant authorities to be legally valid.
Signature	The Will deed must be signed by the person making the Will. Here, the beneficiary (receiver of the asset) need not sign the Will. Attestation by two witnesses is mandatory.	Gift deed must be signed by both the donor and donee (receiver of the asset). Attestation by two witnesses is mandatory.

Here are some commonly asked questions about gift deed and a will. 

Can a property mentioned in a Gift Deed be transferred via a Will?

Once a property is gifted, it is no longer part of the donor’s estate, and therefore, it cannot be disposed of or distributed through the Will. The recipient becomes the legal owner, and the Will’s instructions do not apply to the gifted property.

Can we put conditions on the Gift?

The concept of gifting often involves an expression of love, gratitude, or goodwill. However, there are instances where a gift may come with certain conditions attached. In legal terms, such gifts are referred to as Conditional Gift Deeds.

Types of Conditional Gifts:

Conditional gifts can vary in nature and purpose. Some common types include:

Gift with Maintenance condition: In this type of conditional gift, the donor may require the donee to take care of them or provide specific support, such as financial assistance or medical care.

Gift with non-transferability condition: The donor may impose a condition that the gifted property cannot be sold, transferred, or mortgaged by the donee.

Gift with Specific Use Condition: The donee may be obligated to utilise the gifted asset for a particular purpose, such as education, charitable activities, or starting a business.

• Condition Precedent Gift: In this type of conditional gift deed, the donee must meet the requirements or conditions before accepting the transfer of immovable property from the donor. The conditional gift deed should have a reasonable need that can be achieved to take effect.
  • Example: A father gifts property to his son because he must do his masters from London within five years. If the son fails to do that within the specified time, the gift will not take effect.
  • Legal Implication: Under this condition, the gift is contingent upon fulfilling a specific requirement. Failure to meet the condition results in the gift being void.
• Condition Subsequent Gift: This type of conditional gift deed requires the donee to follow the conditions after the transfer for the next interval. The gift deed will be revoked in case there is any violation or breach of the agreement.
  • Example: X gifts a piece of land to a charitable organization with the condition that it must be used solely for educational purposes. If the organization later uses the land for commercial activities, the donor has the right to revoke the gift.
  • Legal Implication: This type of condition places ongoing obligations on the donee. Failure to comply with the conditions can lead to legal consequences, including the revocation of the gift.

Can it be revoked if conditions are not met?

Revocation by Failure of Condition: If a gift is conditional and the condition is not met, the donor may have the right to revoke the gift. This is often explicitly stated in the gift deed.

Conclusion: Whether one has to choose a will or a gift deed depends on each person’s choices and requirements. But it is better to do so by thoroughly understanding the merits and demerits that comes with choosing these instruments.

The views and opinions expressed in this blog are those of the author. All content provided is for informational purposes only and should not be taken as professional advice.