Gift Deed

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Gift Deed

A Brief Introduction About the Gift Deed

A gift deed 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.

An organization transferring property to another organization could also use this deed

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

The donor makes the gift, and the recipient receives the it. Typically, an agent is used to ensure that the gift is transferred. Apart from money, stocks and shares may also be transferred through gift deeds.

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

Gift deed, as an official document, is taken in the following circumstances:

  • When an individual is giving a gift to another individual or an organization as a donor
  • When an individual is receiving a gift from another individual or organization as a donee
  • When the donee has to accept the gift given by the donor
  • When a contract has to be created to make the transfer of gifts official

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

A gift deed ensures that the donor and the donee have voluntarily agreed to the transfer of the gift 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 a special warranty deed.

A general warranty deed protects the donee from a defective title and provids with the required documents to convert the title to a good one, assures him that the property is free of any encumbrances, and can help in enjoying the property in quietude. A special protection warranty offers lesser protection to the donee. When you want to gift an individual or an organization securities, or transfer property in their name, a gift deed must be drafted and registered.

This deed also protects the donee from any legal action by the donor’s other successors in case a parent is gifting a child any movable or immovable property. This deed signifies that a child has accepted the offer his parents have made to him for the transfer of the gift. 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

The gift deed definition states that the transfer is voluntary from a donor to a donee with no expectation of 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 who will be appointed by the donor for ensuring the donee receives the gift
  • The details of the gift, whether it is movable or immovable, and the nature of such 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 generally irrevocable.
  • The relationship between the donor and the donee.
  • 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 guaranteeing that the agent is indemnified from all liabilities in carrying 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 contract: Both parties much acknowledge that they are of legal age for contracting, and the contract is being drafted voluntarily with mental soundness. No party should be coerced into entering the contract. If the donee is a minor, then an  agent should be appointed who will contract on the minor’s behalf.
  • Absence of consideration: What sets this contract 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 donor must gift the donee unconditionally and voluntarily without revocation barring exceptional circumstances. Property transfers are generally irrevocable
  • Confidentiality clause: The parties to the contract should include a confidentiality clause to ensure that the details of the gift are not disclosed to parties other than those agreed upon in the contract
  • 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 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. The donor will have a legal document if  there any queries would be raised 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: 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 there are  multiple heirs, there is a possibility that the other heirs will contest the property given to one heir in a court of law. If there is no gift deed, the donee does not have a legal standing.
  • 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 the property or securities to the donee, the donee might take legal action against the donor if there is a material breach in the contract. 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 only be revoked in such a 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 a  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.