Two options often stand out when passing on your assets: a Will and a gift deed. Each has its own set of rules, benefits, and potential tax implications, and deciding between them can be a bit overwhelming. But don’t worry—this guide will break everything down for you in simple, digestible terms. By the end, you’ll understand what a Will and gift deed is, their pros and cons, and which one might suit your needs better.
What Is a Will?
A Will is a legal document that outlines how your assets, including property, money, and other valuables, will be distributed after your death. You can appoint beneficiaries (people who will receive your assets) and executors (people responsible for carrying out the will).
The key thing to remember is that a Will only comes into effect after your death. Until then, you continue to own and control your assets as you wish.
Tax Implications of a Will
Every country has their own laws and taxes governing Wills. In India:
- Inheritance tax: In India, there’s no inheritance tax, per se, but stamp duty or registration fees may apply when transferring property ownership to heirs.
- Capital gains tax: The beneficiaries may have to pay capital gains tax if they decide to sell the inherited property, but the cost is calculated based on the value at the time of the deceased’s death.
Advantages of a Will
- Control Until Death: Wills are executed posthumously. Until then, the testator has complete control over their assets, movable or immovable. Also the testator can change or update the will as often as they want during their lifetime.
- Clear Asset Distribution: A Will is a quite an useful tool to ensure that your assets are distributed according to your wishes. Yet, while framing the will, one should be extremely careful and give attention to minutest of details so that there is minimal confusion and ambiguity.
- Inexpensive: Drafting a simple will doesn’t typically involve hefty legal fees, making it a cost-effective way to plan your estate.
Disadvantages of a Will
- Probate Process: Wills need to go through probate, a legal process that can take time, sometimes delaying the distribution of assets. It also brings your private affairs into public eyes, often comprising privacy.
- Legal Challenges: While making a Will, you have to be extremely sure to not leave any ambiguity behind. If the Will is not specific enough or has certain ambiguity in terms of asset distribution, it can be contested, leading to family disputes and legal battles among beneficiaries.
- No Immediate Transfer: Since a will only comes into effect after your death, there’s no way to transfer assets during your lifetime.
What Is a Gift Deed?
A gift deed is a legal document that allows you to transfer ownership of your assets—like property, money, or valuables—to another person while you are still alive. The key difference between a gift deed and a will is that the transfer happens during your lifetime, and the ownership is immediately passed on to the recipient.
Types of Gift Deeds
Gift deeds can be classified based on the recipient or type of asset being transferred. Some common types include:
- Gift Deed for Property: Transfer of ownership of land, house, or commercial property to another person.
- Gift Deed for Money: Transfer of money as a gift to someone.
- Gift Deed for Movable Assets: This could include valuable items like jewellery, cars, or other personal belongings.
- Gift Deed to Family Members: A gift deed specifically used to transfer assets to family members like children, spouses, or siblings.
Each type of gift deed needs to comply with the law and often requires registration for it to be legally valid.
Tax Implications of a Gift Deed
The taxation around gift deeds is straightforward but varies by country. Here is a nice little infographic that explains the nitty gritty tax details related to gift deeds dealing with property.
In India:
- No tax on gifts to close relatives: Gifts to relatives such as parents, children, or siblings are tax-free under Indian tax law.
- Gifts to non-relatives: If you gift assets to someone who is not a close relative and the gift’s value exceeds ₹50,000, the recipient must pay tax on the amount exceeding that limit.
- Capital Gains Tax: Any type of gains made after receiving the gift is taxable. If the recipient of the gift decides to sell the asset in the future, they may be liable for capital gains tax based on the fair market value at the time of the original owner’s acquisition.
Advantages of a Gift Deed
- Immediate Transfer: Ownership of the asset is transferred immediately, making it useful if you want to see your loved ones benefit during your lifetime.
- Avoid Probate: Since the transfer happens during your life, there’s no need for probate or lengthy legal processes after your death.
- Tax Benefits for Family Gifts: In many cases, gifts made to close family members are exempt from tax.
Disadvantages of a Gift Deed
- Irrevocable: Gift deeds are permanent. Once a gift deed is executed, you cannot take back the gifted asset. The recipient becomes the full legal owner.
- Stamp Duty Costs: In India, registering a gift deed comes with a stamp duty, which varies by state and can be a significant expense.
- Future Legal Issues: If a gift deed is not properly drafted and registered, it could be subject to legal challenges.
Conclusion
Deciding between a Will and a gift deed largely depends on your specific needs, preferences, and financial situation. The former offers flexibility and control, allowing you to manage your assets until death, while the latter deed provides an immediate transfer, bypassing probate and potentially reducing legal hurdles. It’s always a good idea to consult with a legal expert to help you decide which option fits best with your life goals and estate planning needs.
At Mitt Arv, we believe in empowering you to secure your legacy with confidence. Our comprehensive Asset Vault simplifies estate planning, ensuring all your assets are meticulously organized and your wishes honored. With Mitt Arv by your side, you can create a seamless and stress-free transition for your loved ones, safeguarding their future while preserving your peace of mind.