Should you gift or bequeath your assets through a Will
If you want to help someone by giving your assets whether partly or fully to anyone for his benefit you can do so by two methods. Either you can make a gift of the assets while you are alive or you can enjoy the assets as long as you are alive and bequeath it to the person under a Will which comes into effect only after your death and not before that. Both the modes have some pros and cons. Let us discuss.
Giving it away by making a gift
In case you wish the person to enjoy the benefits of the asset immediately, making gift of the same is the right way but you lose control over the asset once and for all. A person can gift away his self-acquired assets the way he wishes including making gifts in favour an outsider. However, a Hindu cannot make gift of his share in the Hindu Undivided Family (HUF) assets though he can bequeath the same to anyone including an outsider.
Gift of a movable asset can be made by delivery itself whereas for making a gift of an immovable property you need to execute a gift deed and need to pay stamp duty on the market value of the property. The gift deed is required to be registered if the value of the immovable property subject matter of gift exceeds one hundred rupees making it practically mandatory for every transaction of immovable property subject to registration. Some of the states like Maharashtra levy a nominal stamp duty for gifts made between certain blood relations. A gift made does not become final unless and until it is accepted by the proposed recipient.
If the person to whom you wish to make gift is not covered under the categories of specified relatives and the value of gifts received by such person from all the sources during the years exceeds rupees fifty thousand, the aggregate value of all the gifts become the income of recipient without there being any threshold exemption. Please note that it is the recipient who has tax implications for such gifts but the donor does not have tax implications for gifts. Please note that as long as the value of all the gifts received during the year does not exceed rupees fifty thousand, it is not to be treated income of the recipient.
Bequeathing through a Will
After one’s death his assets pass on in two different ways. In case no Will is executed all the assets owned by a person, at the time of his death, will pass on to his relatives as per the provisions of succession laws applicable to the deceased. In case a Will is executed by the deceased, the assets which are bequeathed under a Will get inherited by person/s named in the Will. In case all the assets are not covered under the Will, the assets not covered under the Will get inherited by the legal heirs of the deceased as per the succession law.
Under a gift, transfer of ownership happens immediately on acceptance of the gift by the recipient whereas vesting of rights under a Will does not happen as long as the person making a Will is alive. So under a Will you are free to enjoy such assets during your life time. A Will is neither required to stamped nor is it required to be registered unlike a gift deed. Moreover, as we do not have any inheritance tax in India, the beneficiary under the Will does not have to pay any tax on the assets so inherited making bequeathing of assets through a Will the cheapest way to pass on your assets to the desired person.
It may be noted that under the law of succession applicable to Hindu, there are no restrictions on a person bequeathing all his assets to any person/s to the exclusion of his legal heirs whereas a Muslim cannot bequeath more than one third of his assets under a Will as per the Sharia law.
Which one is better for you
The answer to this question cannot be a readymade as the circumstances are different for everyone. But while deciding about the appropriate mode of transferring your assets you should take into account certain points. For example, if your wish is only to ensure that assets owned by you pass on to persons of your choice only after death and you want to enjoy and have control over those assets during your life time, bequeathing your assets through a Will is the only advisable way. Making of a Will is also advised if you want to ensure smooth succession of your assets after your death even to your legal heirs. In case you want your assets to go to persons who are not your legal heirs or want your legal heirs to inherit your assets in different ratio than what is prescribed under the personal law against making of a Will is the right way.
On the contrary in case you want to help someone immediately it can only be ensured through making of a valid gift. This will ensure instant gratification for the needy person. Gift mode should be resorted to only when it is needed under specific circumstances. Under no circumstance you should make gift of all or substantial part of your assets. Never make gift of your assets with the sole purpose of saving tax. In my opinion, it is foolish to lose control of your assets just to save a few bucks in taxes. Transferring part of your wealth through a gift can be considered in case you wish to see for yourself that certain portion of your assets are distributed amongst your legal heirs while you are alive to ensure that no litigation happens around those assets.
Balwant Jain is a tax and investments expert and can be reached on [email protected] and @jainbalwant on twitter.