Gift Deed

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Gift Deed

A Brief Introduction About the Gift Deed

This is a legal document used by an individual to give movable property like cash or immovable property like real estate either to members of the family or to a charitable organization.

This deed could also be used by one organization to transfer property to another organization.

An essential element of gift deeds is there are no conditions attached to the gift, and there is no compensation expected from the party who is receiving the gift.

The donor makes the gift, and the recipient or donor receives the gift. An agent should be named in the deed to ensure that the recipient gets the gift. Apart from money, such deeds can be used for transferring shares or stocks.

There are two types of such deeds, revocable and irrevocable. A deed of gift real estate is an irrevocable deed, which means that you cannot cancel or withdraw it once the deed is completed.

What Is a Gift Deed

Gift deeds are used when an individual or an organization wants to transfer property, money, or securities to another individual or organization without any consideration or conditions.

Who Takes the Gift Deed? – People Involved

When you are giving a gift to another individual or an organization as a donor or receiving a gift from another individual or organization as a donee, you need an official document such as gift deeds to make the transfer legal. The donor offers the gift to the donee, and the donee has to accept the offer like any other contract for the document to be legal.

Purpose of the Gift Deed – Why Do You Need It?

The purpose of gift deeds is to ensure that the donor and the donee have voluntarily entered into this agreement with the understanding that there will be no consideration payable to the donor. A gift warranty deed is applicable in case of property transfers. There are two types of such deeds, general warranty deed, and special warranty deed.

In case of a general warranty deed, the donee is protected from a defective title, will be provided with the required documents to convert the title to a good one, has the assurance that the property is free of any encumbrances and can enjoy the property without any disturbance. A special protection warranty offers less protection to the donee.

When you want to gift someone or organization securities or transfer property in their name, such a deed must be drafted and registered. This deed protects the recipient or donee from legal action by other successors in case a parent is gifting a child any movable or immovable property. This deed ensures that the donor has made an offer (gift) to the child, and the child has accepted the offer. If you have more than one child, then gift deeds will protect the child from legal action by the other children.

Contents of the Gift Deed – Inclusions

As per the gift deed definition, it is the voluntary transfer of a gift from a donor (owner of the property) to a donee (recipient of the gift) without any consideration. The donor should not be insolvent and should not use the deed for evading taxes. When it comes to the contents, it is important that the voluntary aspect is mentioned and the fact that there is no consideration involved.

The content of a standard deed is as follows:

  • The names of the parties involved in the deed, the donor and the donee
  • The effective date of the agreement
  • The agent is appointed by the donor for ensuring the donor receives the gift
  • The details of the gift, whether it is movable or immovable and the nature of the gift
  • Whether the deed is revocable or irrevocable. If it is a revocable deed, then the events which lead to revocation of the deed need to be mentioned. Deeds used for the transfer of property are irrevocable.
  • The relation between the donor and the donee, whether they are family members or whether both parties are organizations
  • The laws of the state governing the deed and in accordance with which any dispute arising out of this contract will be resolved
  • The compensation payable to the agent for carrying out the instructions of the donor
  • Indemnity clause: The agent is indemnified from all costs incurred to carry out the wishes of the donor
  • The rights, responsibilities and the powers of the agent
  • A clause mentioning that no consideration is receivable by the donor against the transfer of securities or property to the donee

How to Draft the Gift Deed?

While a gift deed form contains the important clauses that you need while drafting this agreement, you can customize the form to suit your specific requirements.

Here are the points you need to consider:

  • Eligibility to enter into a contract: While drafting this deed, you need to determine whether the donor and the donee are eligible to enter into a contract in terms of age and mental ability. No party should be coerced into entering the contract. If the donee is a minor, then the agent should be appointed who will ensure the transfer when the minor attains majority
  • Absence of consideration: What sets such contracts apart from other types of contracts is that no consideration is involved in exchange for the movable or immovable property given to the donee
  • Terms of the contract: The deed cannot lay down any terms and conditions for the recipient of the gift, unlike other contracts. The donee needs to be given the gift voluntarily, and only in exceptional circumstances, the gift deed may be revoked. Property transfers are irrevocable
  • Confidentiality clause: The parties to the contract should have this confidentiality clause to ensure that the details of the property being gifted are not disclosed to either family members or third parties
  • Resolution of disputes: If there are any disputes between the donor and the donee regarding the gift, then the process of resolution should be decided including the sharing of the attorney fees and the jurisdiction for the settlement

Negotiation Strategy

When a donor is gifting property or securities through a gift deed to a donee, the donee needs to understand the nature of the gift being received. When it comes to property, the location might be a problem, and the donee can request the owner to sell the property and gift the proceeds of the same to the donee.

Benefits & Drawbacks of the Gift Deed

The benefits are as under:

  • Protection of interests: The interests of both parties to the deed, the donor and the donee are protected by it. The donor will have a legal document should there be any queries made by regulatory authorities. The donee is protected from any legal action by family members as well as the tax authorities
  • Rights to property: The donee enjoys complete rights to the gift and does not have to suffer due to any third party asserting their rights to the property
  • Revocation of the deed: There are certain conditions that need to be followed by the donee when the deed is being drafted. If the donee violates those conditions, then the deed can be revoked.

Here are the drawbacks:

  • Legal action by heirs: If you have multiple heirs, there is a possibility that property given to one of the heirs will be opposed by the other heirs in court. If there is no gift deed, there is a threat to the donee
  • Claims by other family members: If there is no gift deed, the other family members might harass you for a share of the property
  • No legal recourse: If there is any legal action initiated by a family member due to the gift, you cannot protect yourself without having an official deed

What Happens In Case of Violation?

Even though the donor does not receive any consideration for transferring property or securities to the donee, the donee might take legal action against the donor if there is a material deviation from what was mentioned in the deed and what was given. The condition of the property is one such point. The donor can also take legal action against the donee before the transfer of property if there is a breach of contract. No action can be taken after the property has been transferred. The deed can be revoked in this case.

If there is fraud involved in the contract, then the court will either cancel the contract under rescission or a fresh contract will be drawn up under reformation. If the property or security gifted in the deed is materially different from what has been mentioned in the deed, then the donee can take legal action and demand money damages from the donor. In this case, there has been a violation by the donor. If the difference is significant, then it comes under total breach of contract, and the compensation receivable by the donee would be much higher. If there is a minor deviation from the contract, then the compensation would be lower.

A gift deed is an effective way of gifting either property, securities, or cash by an individual or organization to an individual or an organization. This deed protects the donee from claims made by other members of the family as well as from the law.

The donor needs to ensure that this deed is not being used for tax evasion(1) or illegal gains. If the deed is transparent, then the donor will not need to worry about any problems from the tax authorities.

The deed needs to mention that there is no consideration being paid to the donor. Though there are no terms and conditions applicable in such contracts, there are certain actions that the donee should avoid, or else the donor has the right to revoke the contract.

The deed ensures that the gift that is being given by the donor does not differ much from the actual gift. If the difference is significant, then the donee can take legal action.