Will vs Gift Deed

Estate planning is important in the lifetime of an individual to minimize the disputes that may arise with regard to both, movable and immovable property. You can move your assets to anyone, including your children, in two ways: by gifting during your entire lifespan or by giving through a Will. Both modes have advantages and disadvantages. Hence, if you are wondering what’s the best way to pass on your assets to your loved ones – Will or gift deed? To make an informed decision, understand what these two legal routes are.

A Will, as defined under the Indian Succession Act, 1925 is the ‘written expression of the intention of the Testator (maker of the Will) as to the mode and manner of division of his/her properties (movable and/or immovable) to such person(s) as he/she may deem fit.’ A Will takes effect only upon the death of the Testator and not at any point of time prior thereto.

On the other hand, a Gift deed is defined under the Transfer of Property Act, 1882 as the ‘transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee.’ By implication, it follows that a gift deed is a document that evidences such a transfer and takes effect during the lifetime of the donor.

Transferring property by Gift deed –

If you want the receiver to start reaping the benefits of the asset right away, you must transfer ownership of the asset as a gift. You may gift any self-owned property to anyone you wish, provided the property is not disputed, and you are qualified to enter into a contract under the Indian Contract Act. Anyone over the age of 18 who is of sound mind can be a real estate receiver. A gift deed can be used to give away property.

Before making a gift deed, here are the following points to keep in mind

• During your lifetime, you can give a property gift

• Once the gift is accepted, the receiver will become the property’s owner.

• The registration of a gift deed is required.

• The administration will charge fees and stamp duty based on the property’s market value for the change of ownership.

• There are no taxes on gifts made to close relatives.

• The recipient must pay taxes on gifts of real estate valued at more than INR 50,000 given to people who are not immediate family members or non-relatives.

• Property transfers are final and can’t be revoked (except as per Sec 126 of the Transfer of Property Act which states 2 modes of Revocation of a Gift deed).

Transfer of property by Will –

An individual, who is competent can bequeath his asset by making a Will. “While a Will need not be in a prescribed format, the following ought to be set out therein:

• The name(s) of Testator’s legatees/legal heirs/family members, if any;

• Appoint and name the person(s) as an ‘Executor’ who will carry out the directions and requests of the Testator in the Will for management and disposition of the assets there under;

• Details of all the assets, till then, owned/acquired by the Testator;

• Mode and manner of distribution of the Testator’s assets.

People can inherit assets in two ways after someone dies. Without a will, the deceased’s assets will be distributed to his relatives following the terms of successors applicable to the deceased. If the deceased leaves a will, the assets will be acquired by the persons named in the will. If all of the assets are not covered by the will, the assets that are not protected will be inherited by the deceased’s legal heirs according to succession law.

Not many are aware of this but there are no restrictions on a person choosing to give his assets to anyone to the exclusion of his beneficiaries under Hindu succession law. Whereas when it comes to Muslims, one cannot bestow more than one-third of his assets in a will under Muslim law.

Before making a Will, here are the following points to keep in mind

• Although registration is not required, it can enhance transparency and assist in avoiding future litigation.

• A person who receives property through a Will is not required to pay taxes.

• Following the recipient’s death, possession of the real estate passes to the successor/s following the laws of the land.

• Anyone implementing a Will has the right to change or revoke it at any time during their lifetime.

Which is better: a Gift deed or a Will?

A gift deed is an excellent choice if you want the receiver to benefit instantly from the property transfer. However, transferring the property by Will is a good option for those who want to transmit their property to the receiver after the demise.

However, if you leave all or a substantial portion of your assets to your beneficiaries during your lifetime, you may find yourself in a difficult situation in your old age. Such incidents must have occurred frequently around us. For Instance, the popular case of a well-known industrialist being forced to live in a rented house is still fresh in our minds.

Furthermore, transferring your assets solely for tax purposes is a bad idea. It is illogical to give up control of your assets in order to save a few amounts in taxes. Gifting as a mode of asset transfer is recommended when you want to ensure and witness the transfer of all or portion of your property during your entire lifespan to avoid future litigation. Remember, never give away a significant portion of your wealth while you are still alive. You can give away a portion of your assets while leaving the remainder to your heirs through a Will.

A will is also recommended if you want to maintain the smooth inheritance of your assets after your death and want your legal beneficiaries to inherit your properties.