There are benefits to making gifts during your lifetime as opposed to waiting until your death to pass on your inheritance. However, there are also potential pitfalls if such gifts are not properly considered in light of your estate planning as a whole.
Anyone can give another person an inter vivos gift (i.e. given during the person’s life). Such gifts can vary from socks on Father’s Day; to jewellery on Valentine’s Day; to hundreds of thousands of dollars from a parent to a child to help them pay for their first home. However, when a person is dying, or when a significant gift is made shortly before their death, such gifts can be viewed with suspicion by the relatives of the deceased who did not benefit from the gift, or see their inheritance as being diminished by the gift.
For an inter vivos gift to be validly made, the donor must have the legal capacity to make the gift and must be acting freely with sufficient understanding of the transaction and its consequences. The gift must, of course, be delivered to the donee of the gift.
One allegation that is regularly raised in family disputes after the donor of a significant gift has died is that they were acting under undue influence from the donee of the gift. So, how can you avoid such disputes arising? In my view, the answer is quite simple – make sure there is evidence of your intentions. This can be done by documenting the gift in a Deed and/or your Will.
Some things to consider are:
- Having an independent third party like a solicitor or accountant provide you with advice in relation to the gift will combat later allegations that you didn’t understand the transaction, or that you were acting under undue influence;
- If you would prefer the gift to be brought into account (known as “hotchpot”) after your death, in order to ensure an overall equal distribution among relatives, then this should be specifically explained in your Will;
- When making a significant gift of money or of a specific asset, you should review your Will to ensure that the terms are still valid and that no one is unduly disadvantaged by the change in your asset position. You should also be careful that the gifting of an asset does not cause a gift previously made in your Will to be adeemed.
You should be careful to ensure that what you intend to be a good deed does not wind up causing financial loss, heartache and stress for the person you are trying to help after you are gone.
Special considerations apply to gifts made where the donor knows he or she is dying – see our article “Gifts in Contemplation of Death“.