When it comes to planning for the future and ensuring your assets are distributed according to your wishes, choosing between a Will and a Gift Deed is essential.
Both documents serve the purpose of transferring property, but each has distinct implications, tax consequences, and legal requirements.
Understanding the difference between these two legal documents is critical in making an informed decision.
In this article, we’ll explore the distinctions between a Will and a Gift Deed, along with their benefits, limitations, and potential legal implications.
Understanding The Basics
What is a Will?
A Will is a legal document that outlines the wishes of a person, or Testator, regarding the distribution of their assets upon death. A Will only comes into effect after the Testator’s death and is commonly used for testamentary succession.
The Indian Succession Act governs Wills in India and ensures the property and assets are distributed according to the Testator’s wishes. After a person passes, the Will must go through a probate process, where it is validated by a competent court before asset distribution.
What is a Gift Deed?
A Gift Deed is a legal document that allows a person to transfer property or assets during their lifetime without receiving monetary compensation.
A Gift Deed becomes effective immediately upon registration, transferring ownership to the recipient, known as the donee.
In India, Gift Deeds are governed by the Indian Registration Act, and transferring property via a Gift Deed is typically irrevocable. Gift Deeds are commonly used for immovable properties like real estate but can also apply to movable assets like cash and jewellery.
Will vs Gift Deed – Key Differences
Aspect
Will
Gift Deed
Timing of Transfer
After Testator's death through probate
Immediate, during donor’s lifetime upon registration
Revocability
Can be modified or revoked any time by the Testator
Generally irrevocable after registration
Legal Process Registration
Not mandatory to registerRequires probate but not necessarily registration
Mandatory registration with the sub registrar in case of immovable property.
Probate
May be required in certain cities (i.e. Mumbai, Chennai and Kolkata) on demise of Testator
Not applicable in case of gift
Cost Implications
Minimal (legal fees); no stamp duty
Involves stamp duty and registration fees
Tax Implications
No adverse tax implications
Potential tax implications based on recipient relation
Legal Challenges
May require probate to be enforced
Can be contested but harder to revoke once registered
Key Considerations In Choosing Between A Will & Gift Deed
When deciding between a Will and a Gift Deed, consider the following aspects to ensure the chosen option meets your goals:
- Timing of Transfer
- A Will only takes effect after the Testator’s death, making it suitable if you want to retain control over the assets during your lifetime.
- A Gift Deed is effective immediately upon registration, allowing property transfer during the donor’s lifetime.
- Cost Implications
- Preparing a Will involves minimal expenses, mainly legal fees if you consult a legal professional.
- A Gift Deed requires stamp duty and registration fees, which vary by state. This can increase the cost of transferring property.
- Revocability
- A Will can be updated, altered, or revoked by the Testator any time before death. Therefore, the Testator retains complete control over the asset.
- Once a Gift Deed is registered, it is generally irrevocable, and the recipient gains full ownership. In other words, the donor loses complete control over the asset.
- Legal Challenges and Documentation
- Wills are vulnerable to legal disputes after the Testator’s death, especially if family members disagree on asset distribution. A probate is required to validate the Will.
- Gift Deeds are more challenging to contest after registration, but the donee must ensure all property records and other relevant documents are in order.
Legal Requirements For A Will vs Gift Deed
Legal Requirements for a Will
- Sound Mind: The person making the Will must be of sound mind, free from undue influence, and capable of understanding the consequences of their decisions.
- Witnesses: A valid Will must be signed by at least two Witnesses, adding credibility and helping avoid legal challenges.
- Probate Requirement: After the Testator’s death, a probate petition must be filed, where the Will undergoes verification by a competent court before the estate’s assets can be distributed.
Legal Requirements for a Gift Deed
- Registration: In case of immovable property, a Gift Deed must be registered at the sub registrar’s office, and both the donor and donee must appear with identity proofs, like a voter ID card.
- Stamp Duty: Gift Deeds attract stamp duty and registration fees, which vary depending on the relationship between the donor and donee, the type of asset, and state laws.
- Irrevocability: Once a Gift Deed is registered, it is generally irrevocable unless contested for reasons like coercion or lack of mental capacity.
Tax Implications Of Will vs Gift Deed
Tax Implications Under a Will
- Assets received through a Will do not attract inheritance tax or income tax. A Will is ideal for transferring property without adverse tax implications.
- Probate Fees: Although no tax is levied, probate fees may apply in some states.
Tax Implications Under a Gift Deed
- Stamp Duty: Gift Deeds for immovable properties require stamp duty based on the property’s value. Transfers to close relatives often have reduced stamp duty rates, while other transfers may have higher stamp duty implications.
- Income Tax: Gifts to relatives are tax free in India. ed property may attract capital gains tax if sold by the donee. However, gifts to non-family members will have tax implications under the income tax lens.
Registration Process & Legal Procedures
Registration Process for a Will
- Registration of a Will is optional but recommended for added security. Registered Wills are harder to contest in court.
- To register, the Testator can visit the sub registrar’s office with the relevant documents.
- If unregistered, the Will must still be presented for probate to be considered legally valid in a competent court.
Registration Process for a Gift Deed
- The Indian Registration Act mandates the registration of Gift Deeds, making them enforceable in law, in case of immovable property.
- Stamp duty and registration fees are calculated based on state laws and the property’s market value. The donor and donee must visit the sub registrar’s office with identity proof and any property records.
- After registration, the Gift Deed is binding and provides the donee with full legal ownership.
Legal Disputes & How to Avoid Them
Potential Legal Disputes with Wills
- Family Disputes: Wills may lead to disputes, especially if family members believe the distribution is unfair. A carefully drafted Will with clear asset distribution can help prevent such issues.
- Legal Challenges: Unclear language, lack of Witnesses, or signs of undue influence can lead to legal challenges. Consulting a legal professional when drafting a Will can add security.
Potential Legal Disputes with Gift Deeds
- Irrevocability: Gift Deeds are harder to contest, but if there is evidence of coercion or mental incapacity, family members can still challenge the deed.
- Documentation Requirements: Ensure all property records and other relevant documents are complete to avoid issues later. Missing documents can create legal challenges.
Practical Scenarios: When To Use A Will vs A Gift Deed
- Property Transfer Among Family Members
- Gifting to close relatives may be beneficial as it simplifies property transfer and may have reduced stamp duty. However, Wills can be preferable if the individual wants to retain ownership until death.
- Real Estate Transfer to Non-Family Members
- For transferring real estate to non-family members, a Will may help avoid stamp duty outgo, as gifts to non-family members often attract higher stamp duty.
- Estate Planning for Senior Citizens
- Senior citizens may find a Will more suitable, especially if they want to maintain control over their assets and plan for an orderly distribution after their passing.
- Immediate Financial Needs
- If the donee requires immediate control over the property for financial reasons, a Gift Deed can provide ownership immediately after registration.
Consulting Legal Professionals: When & Why
- Legal Advice on Drafting: Consulting a legal professional when drafting either a Will or Gift Deed ensures all legal requirements are met.
- Avoiding Legal Challenges: A lawyer can verify relevant documents, preventing future legal battles and protecting the donor’s lifetime wishes.
- State-Specific Stamp Duty Rules: Stamp duty implications vary by state, making it essential to understand the rules specific to your location.
The Bottom Line: How Yellow Can Help
In India, both Wills and Gift Deeds serve as vital tools for transferring property, but each has unique benefits and limitations.
Wills provide flexibility and control, making them ideal for senior citizens who want to plan for the future.
Gift Deeds offer immediate transfer, beneficial in certain family or financial scenarios. Understanding the tax implications, legal requirements, and registration process for each document is essential for informed estate planning.
Consulting with a legal expert can help ensure a smooth and legally compliant transfer, reducing the risk of family disputes and honouring the donor’s wishes.
At Yellow, we can help you with all aspects of estate planning, including Wills, Trusts, Powers of Attorney, Gift Deeds, Legal Heir and Succession Certificates, and Living Wills. We also offer post-demise and asset transfer services. Our team of legal experts has more than 50 years of combined experience.
