LEGACY BUILDING THROUGH WILLS AND GIFTS – LEAVING A MARK FOR FUTURE GENERATIONS

HOW DOES WILL AND GIFT COMPARE?

A Will or a Testament is a valid legal document that outlines the distribution of the assets of an individual to various recipients in granular detail. You can will to your spouse, children, relatives or even to any charitable trust. The normal practice is to appoint an executor for the Will, who is responsible to ensure that the instructions in the will are implemented in letter and spirit. A Will can be changed by the testator (when alive) any number of times. Will is effective only on the death of the testator.

A Gift Deed is a legal document wherein the transfer of assets happens during the lifetime of the testator itself. The movable and immovable assets of the person can be gifted to legal heirs, relatives or even to charitable causes. There are two ways in which the gift differs from a Will. Unlike a Will, the Gift Deed is effective immediately on execution. In contrast the Will comes into force only on death of the testator. Secondly, gift deed cannot be revoked, except under some special circumstances, where the gift is conditional and the recipient has defaulted on his side of the deal.

It is not mandatory to register the Will or the Gift Deed. However, to avoid any legal problems in the future, it is best to get such deeds registered.

How are Will and Gift Deed important?

There are several reasons for people to evaluate Will and Gift deeds when they are still fit and healthy. The chart below captures their importance.

The first graphic highlights the importance of a Will

The graphic below highlights the importance of Gift Deed.

Before getting into how the Will differs from the Gift Deed, suffice to say that both methods are acceptable. The testator can decide on the mode of transfer of assets (either Will or Gift).

How does Will differ from Gift Deed?

Here is how Gift Deed differs from the Will on some key parameters.

a.     The most important difference lies in the date on which it becomes effective. While a Will is only effective on the death of the testator, the gift deed is effective immediately on registration. In both cases, the registration of the Will or the Gift Deed is not mandatory, but it is advisable to avoid future legal hassles and also in the case of gift to claim the appropriate tax benefits.

b.     The second is the issue of revocation. A Will can be revoked at any time during the life of the testator, but nobody else can revoke the will. There is no revocation in the case of gift, except in special cases where the recipient of the gift did not meet conditions imposed.

c.     What about tax implications? The Will, by itself, does not have any tax implication. The assets actually move to the recipients only on the death of the testator. However, in the case of Gift, there is clubbing and, also, the profits made on sale would be taxed in the hands of the recipient. Only personal effects are excluded from the ambit of capital gains tax.

d.     The Will can specify the share of each recipient. It can be given proportionately to the heirs or even to a charity of their choice. In a gift deed, the transfer of property happens during the lifetime of the person.

e.     In  Will, there is a legal process after the death of the testator. The process is called probate and it ensures the validity of the will and the onus is on the executor of the will to ensure its implementation. The only legal process is the execution and registration of the gift deed in a gift.

Some of the downside risks of Will and Gift Deed

Here are some common pitfalls in Will and in a gift deed.

·       One risk in a will is that the probate process can be quite elaborate. Also, the will is part of public record during the probate and hence privacy becomes an issue. Wills are open to disputes and quite often legal hassles can go on for a long period, before the heirs can enjoy the benefits of the Will.

·       In a gift, there is loss of control since it is irrevocable, and we have seen several cases in the recent past. Also, gift has tax implications for the donor and the donee.

Having said that, the choice of Will versus Gift is a personal choice that must be made after seeking legal advice only!