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Understanding the Basics of a Deed of Gift – Your Essential Guide


Deed of gift – another estate planning tool

A deed of gift is a legal document that formalises the transfer of property ownership from the donor to the recipient without needing payment. It requires the signatures of both parties, the donor and the recipient, to be legally binding.

 

A deed of gift is needed when a donor gives a gift to a recipient without any conditions attached. This document legally transfers property ownership to the recipient, providing evidence that the gift was made and eliminating the need to repay the estate upon the donor's death.

Executing a deed of gift allows the transfer of ownership to occur while the donor is still alive, reducing the likelihood of challenges similar to those faced by a last will. The donor must be of sound mind and not under any duress when signing the deed of gift. To strengthen the document's validity, obtaining a doctor's certificate affirming the donor's mental capacity and attaching it to the deed of gift is advisable.

 

Can a person make a gift to a trust?

Yes, a person can make a gift to the trustee of a discretionary trust. It's a common practice in estate planning and asset protection strategies. When a person makes a gift to the trustee of a discretionary trust, they transfer ownership of the gifted property to the trust itself, with the trustee acting as the legal holder of the property on behalf of the trust beneficiaries.

In a discretionary trust, the trustee has the discretion to distribute the trust's assets among the beneficiaries according to the terms of the trust deed.

 

Can a company make gifts?

Yes, a company can make a gift to an individual under a deed of gift. However, legal requirements must be followed to ensure the validity and enforceability of the gift. Here are the key considerations:

 

  • The company must have the legal authority to make gifts as per its constitution, articles of association or relevant governing documents. Typically, this authority is vested in the company's directors, who are authorised to act on behalf of the company.

  • Before making a gift, the company's directors should pass a resolution approving it. This resolution should be recorded in the company's board meeting minutes and document the details of the gift, including its nature, value, and recipient's identity.

  • The gift deed should be executed according to the company's requirements. It should identify the company as the donor and the individual as the gift recipient.

  • The company should clearly express its intention to make a gift to the individual without any expectation of payment or consideration in return. This intention should be reflected in the language of the deed of gift and supported by the company's actions and communications.

  • It's crucial to document the gift properly by preparing a written deed of gift that sets out the terms and conditions of the gift, including any relevant conditions or restrictions. The deed should be signed and dated by the company's directors.

 

What types of assets can one gift under a deed of gift?

A wide range of assets can be gifted under a deed of gift, including but not limited to:

  • Real estate including land, buildings and any fixtures attached to the land;

  • Personal property encompassing movable assets such as vehicles, jewellery, artwork, furniture, electronics and household goods;

  • Financial assets including stocks, bonds, mutual funds and other investments;

  • Cash can also be gifted under a deed of gift;

  • Intellectual property such as patents, trademarks, copyrights and trade secrets.

 

It's important to note that the specific requirements and legal considerations for gifting various types of assets may vary depending on factors such as the nature of the asset, applicable laws and regulations, tax implications, and the donor's intentions. Therefore, individuals should consult with legal and accounting professionals to ensure compliance with relevant laws and to understand the legal and tax implications of gifting specific types of assets.

 

The main parts of a deed of gift

 

A deed of gift document typically consists of several main parts, each serving a specific purpose to ensure the validity and enforceability of the gift. While the particular structure may vary depending on the circumstances and preferences of the parties involved, the following are standard components found in a deed of gift:

 

Title or Heading

The document usually begins with a title or heading identifying it as a "Deed of Gift" to convey its purpose.

 

Introduction, Recitals or Background

This section sets out the background and context of the gift, including the identities of the donor and recipient, the nature of their relationship, and the details of the gifted property. It may also include any relevant declarations, acknowledgments, or statements of intention by the parties.

 

Operative Clause

The operative clause is the central provision of the deed that formally transfers ownership of the gifted property from the donor to the recipient. It typically contains language such as "the donor hereby gifts and conveys to the recipient", followed by a description of the gifted property.

 

Covenants and Declarations

These are promises or commitments made by the parties involved, such as warranties regarding the donor's ownership of the property, the absence of any encumbrances or claims on the property, and the donor's authority to make the gift.

 

Costs

This clause identifies who is responsible for paying the fees associated with preparing the deed of gift, such as transfer duty, CGT, registration fees, etc.

 

Execution Clause

This clause identifies the parties signing the deed (i.e., the donor and recipient). It specifies the method of execution, such as signatures witnessed by independent witnesses or affixation of the company seal in the case of corporate donors.

 

Date and Place of Execution

The deed should be dated and signed at the place where it is executed. This information helps establish the timeline and jurisdiction of the deed's execution.

 

Witnesses

In some cases, the parties' signatures may need to be witnessed by independent witnesses to enhance the validity and evidentiary value of the deed. The witnesses should sign and provide their names, addresses, and occupations.

 

Acknowledgment and Acceptance

The deed may include provisions for the recipient to acknowledge receipt of the gift and accept the terms and conditions outlined in the deed.

 

These main parts collectively form the structure of a deed, providing clarity, legal validity, and enforceability to the gift transaction. Parties should carefully consider and tailor the contents of the deed to their specific circumstances and objectives, seeking legal advice if necessary to ensure compliance with applicable laws and regulations.

 

 

Deed of Gift – example

 

DEED OF GIFT

[Date of Deed]

PARTIES:

Donor: [Name of Donor][Address of Donor]

Recipient: [Name of Recipient][Address of Recipient]

BACKGROUND:

  1. The Donor is the registered owner of the real property located at [Address of Property] (from now on referred to as the "Property").

  2. The Donor wishes to make a gift of the Property to the Recipient, and the Recipient accepts the gift on the terms and conditions outlined in this Deed of Gift.

  3. The Donor is the [relationship] of the recipient.


OPERATIVE CLAUSE:

  1. In consideration of natural love and affection and for other good and valuable consideration, the Donor gifts and conveys to the Recipient all of the Donor's right, title, and interest in and to the Property.


COVENANTS AND DECLARATIONS:

  1. The Donor covenants and declares that:

  1. The Donor is the lawful owner of the Property and has full power and authority to make this gift.

  2. The Property is free from any encumbrances, liens, or claims, and no third-party interests are affecting the Property.

  3. The Donor has not received any consideration or payment from the Recipient in exchange for the gift of the Property.

  4. The Donor has not been induced or coerced into making this gift and is of sound mind and competent.


EXECUTION:

  1. This Deed of Gift is executed by the Donor and the Recipient in the presence of the witnesses whose signatures are subscribed below.


WITNESSES:

Witness 1:Name: [Name of Witness 1]

Address: [Address of Witness 1]

Occupation: [Occupation of Witness 1]

 

Witness 2:Name: [Name of Witness 2]

Address: [Address of Witness 2]

Occupation: [Occupation of Witness 2]

 

EXECUTED AS A DEED:

This Deed of Gift is executed as a deed and delivered on the date first above written.

[Signature of Donor] [Signature of Recipient]

[Name of Donor] [Name of Recipient]

[Date and Place of Execution]


Acknowledgement and acceptance by the recipient


 

When does the donor have the authority to make a deed of gift?

It is essential to get legal and accountant’s advice before signing a deed of gift.

The donor can make such a gift if:

  • They own the asset;

  • The asset is not owned by a SMSF or a discretionary trust;

  • The asset is unencumbered;

  • The asset does not form part of the matrimonial pool of assets in court proceedings;

  • The donor has mental capacity and understands the consequences of their actions.

 

What are the requirements for a valid deed of gift?

To be a valid deed of gift:

  • It must have been executed correctly

  • The donor must have full legal capacity

  • The donor should not have signed the deed of gift under duress (under threat)

  • The donor should not have signed the deed under undue influence (eg. a relationship between the donor and the recipient that the recipient has exploited).

 

How to reduce the potential of a successful challenge to a deed of gift?

  • The donor should get a doctor’s report stating that the donor has legal capacity and is of sound mind. Ideally, the report should be produced on the assessment day and the deed signed on the same day.

  • A qualified and experienced legal practitioner should prepare the deed

  • The recipient of the gift should not be involved in any way with the preparation of the deed of gift and should not be present when the donor signs the deed.

 

In conclusion, assets can be legally gifted through a deed of gift. Consulting with a lawyer can provide further guidance on the most suitable approach based on individual circumstances.


Call us on 04211 45637 for advice.

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