Do you want to pass your land or other property onto your family members without charging them any money? Well, it sounds like you need a deed of gift.
This document is a deed created out of love and affection rather than monetary reward.
You’re not expecting any financial gain in exchange, but both you and the individual you’re gifting or donating the property to will sign the deed as acknowledgment.
This can ease future legal hurdles.
Here’s what you should know about a deed of gift.
1. What is a deed of gift?
A deed of gift (also known as a gift deed) is a legal document transferring property to another individual or entity as a gift.
A gift may be transferrable and tangible moveable or immovable properties.
Although these types of gifts are often real estate, they can extend to other types of items, including money, securities, or personal properties.
You may also choose to use a deed of gift to make a donation to a charity or non-profit organization.
It records the act of the individual making the gift (donor) to the person receiving it (recipient).
This is not a required step when donating an asset.
However, it does make the process legally documentable.
Both the donor and the recipient sign the document.
2. How does a deed of gift work?
Are you interested in creating a gift deed?
Here is a general overview of how the process works.
Step #1: Intent and decision
Before the deed of gift is drafted, the donor must have the intention of gifting the property.
The transfer of ownership to the recipient must be a conscious, clear, and voluntary decision.
Step #2: Drafting the gift deed
Either the donor or their legal representative will draft the deed of gift.
We do not recommend drafting it yourself.
Seek the assistance of a qualified attorney to ensure the deed aligns with all legal requirements and includes necessary details.
Step #3: Essential elements
For your deed of gift to be legally valid, it must contain:
1. Identification information for both the donor and recipient
Names, addresses, and relationships (if applicable) of both parties.
2. Description of the property
Details to identify the property being gifted such as address, boundaries, and legal description.
3. Statement of gift
A clear statement indicating the intention to donate the property to the named recipient without any hesitation.
4. Acceptance by the recipient
Either a signature or explicit acceptance clause from the recipient should indicate their acceptance.
Step #4: Execution and notarization
The deed of gift must then be signed and executed by the donor in the presence of witnesses and a notary public.
The number of witnesses and notarization requirements will vary based on local laws.
Step #5: Delivery and acceptance
The deed must be both delivered and accepted for it to be legally effective.
Delivery allows the physical possession of the deed to be transferred to the recipient.
This indicates the donor’s intention to transfer ownership.
The recipient’s acceptance demonstrates their willingness to receive the gift.
Step #6: Registration
Most jurisdictions will require that the deed of gift be registered with the appropriate government authority.
This authority is often the county recorder’s office or land registry.
This registration not only serves as public notice but also helps establish legal ownership.
Step #7: Transfer of ownership
Ownership of the property is official after the gift is executed, delivered, accepted, and registered.
The donor will no longer have any legal rights or interest in the gift property.
3. What is the importance of a gift deed?
A gift deed is important because it facilitates the transfer of property ownership from one person to another without the need for monetary exchange.
Here is why a deed of gift is most significant to landowners.
Transfer of property
Using a deed of gift allows landowners to transfer property to a chosen recipient as a gift.
You can use this type of deed to legally convey ownership rights without the need for a sale or monetary consideration.
Estate planning
As a landowner, you can use this kind of deed to distribute your assets throughout your lifetime and make sure there’s a smooth transition of property to intended beneficiaries.
When you make gifts through a deed, you can reduce the complexities and costs associated with probate after you pass away.
Family succession and support
Deeds of gift are often used to pass down property to family members like children or grandchildren.
If you’d like to provide financial support to your family members or create a legacy that will live on for many generations, this is one way to do it.
You can use gift deeds as a way to plan for the transfer of your property to your family and ensure it remains in the possession of your close relatives.
Tax planning and benefits
In some jurisdictions, gift deeds will have tax benefits for landowners.
If you plan your taxes properly, you can use the deed to minimize estate taxes, gift taxes, and other transfer taxes.
We recommend consulting all of these details with a tax professional.
Personal relationships and charitable giving
Deeds of gift are a way to foster personal relationships and contribute to philanthropic endeavors.
Through these deeds, you can gift property to friends, relatives, and charitable organizations.
Avoidance of probate
If you use a gift deed to transfer property to your loved ones, you may be able to bypass the probate process.
Probate is when the court validates a will and oversees the distribution of assets.
This is a time-consuming and costly process that most people hope to avoid if possible.
Asset protection
A deed of gift can be a strategy to protect assets from potential creditors or legal claims.
If you transfer the ownership of your property through this type of deed, you will separate your assets from personal liabilities.
Just like other types of legal documents or proceedings, the implications of this type of deed can vary depending on your jurisdiction or circumstances.
We recommend consulting with attorneys or real estate professionals to fully understand the implications and make informed decisions.
4. What terms should you understand when learning about a deed of gift?
Familiarize yourself with the following terms if you’re interested in creating a gift deed.
Donor: The individual giving the gift
Recipient: The individual receiving the gift
Agent: The individual that will follow the directions of the donor to administer the gift
Agents are not required, but they are necessary in certain situations like if a minor is the recipient.
5. What are the different types of a deed of gift?
There are two types of gift deeds that you should be aware of before creating one.
You’ll need to designate which one you’re making before doing so.
- Revocable: When a donor uses a gift deed to signify the future intention to give a gift
- Irrevocable: When a donor uses a gift deed to transfer property as soon as the document has been signed and delivered to the recipient
6. What information should I include?
When you create a deed of gift, be sure to include the following information:
The receiver of the gift or recipient
Whether the gift is revocable or irrevocable
The type of gift (monetary or non-monetary)
Information about the donor
Information about the agent
7. What are the advantages of a deed of gift?
There are numerous advantages for landowners interested in using deeds of gifts.
Here’s what you’ll want to consider.
Property transfers
As noted above, a deed of gift allows donors a legal mechanism to transfer ownership of property from one person to another.
When you use this document, you do not need to sell the property or account for other monetary considerations.
Estate planning and wealth transfers
Estate planning can be challenging.
Individuals attempt to find ways to distribute their assets in a financially beneficial manner that also isn’t time-consuming for the recipient.
If estate planning and wealth transfers aren’t strategically considered, then probate is necessary.
Read about this process in the next section.
Overall, when you use a gift deed, you (as a donor) are able to effectively manage your estate and potentially reduce the complexities and costs associated with the transfer upon your passing.
Probate
Probate is the legal procedure by which a court validates a will, settles debts, and distributes assets after a person dies.
When you transfer property through a gift deed, you may be able to avoid probate altogether.
This is the goal for many people who have estates and wealth to pass on to their loved ones.
Probate is an expensive and time-consuming process.
If you know who you want your property to go to in advance, there’s no reason for it.
Tax advantage and planning
Both donors and recipients can benefit from gift deeds depending on the jurisdiction.
Donors are able to potentially reduce their taxable estate, lower their estate tax liabilities, and maximize their lifetime gift tax exemptions.
Likewise, recipients can benefit by potentially inheriting property on a stepped-up basis.
This can minimize capital gains tax if the property is later sold.
To understand the tax advantages of using a deed of gift, do research for your specific jurisdiction.
Family succession and financial support
Passing property down to loved ones can be a way to support them financially.
Using a deed of gift allows you to keep the property in the family and support the financial well-being of the future generation.
Asset protection and medical planning
When you transfer ownership of property using a deed of gift, you separate your assets from your personal liabilities.
This allows you to potentially protect them from creditors.
As a result, many individuals will use them as a way to protect their assets.
You can also couple it with a Medicaid planning strategy if you want to try to qualify for these benefits by reducing your countable assets.
Clear intent and ownership
A gift deed is a legally binding document that establishes clear intent and ownership of the property in question.
In the future, it can be used to prevent disputes or clarify any confusion regarding the property’s ownership.
8. What are the disadvantages?
There are only a couple of drawbacks to using a deed of gift.
However, you should understand them as a precaution.
For one, gift deeds cannot be revoked after execution.
This means you cannot take them back.
For donors who intend to give a gift in the future (revocable), this is often not an issue.
However, if complications arise between the donor and recipient after an irrevocable gift deed is used, then it may be frustrating for the donor.
They may desire to get their property back, and this isn’t possible.
Additionally, gift deeds have additional costs in the form of stamp duty.
These fees vary from state to state, so it’s worth doing additional research to see what it will cost you.
9. What documents are related?
While you’re learning about gift deeds, you may also hear references to the following legal documents.
These documents are similar in purpose or usage to deeds of gift.
However, they are not the same.
We’ll define their usage below.
Quitclaim deed: This document transfers property interest to family members.
Survivorship deed: This document creates a joint tenancy in a piece of real estate between two or more individuals.
Warranty deed: This document shifts an unrestricted title to a property without encumbrances or constraints. You may also hear it called a general deed.
Beneficiary deed: This document expresses property interest in the event of the owner’s death.
Last will and testament: This document defines how assets will be allocated following the owner’s death.
Codicil: This document is used to make amends or additions to a will.
10. How does a deed of gift impact the transfer of title?
A deed of gift legally transfers the ownership of property from the donor to the recipient.
The donor will relinquish their right to the property.
The deed will serve as evidence of their intent to gift the property, and thus, it will legally transfer the title to the recipient.
The gift deed is a legal document and establishes a clear chain of title by documenting the transfer of ownership.
You must record or register gift deeds with the appropriate government authority (i.e., county recorder’s office or land registry).
Furthermore, the deed doesn’t only transfer the title.
It also conveys the rights and interests associated with the property.
This includes the right to possess, use, and enjoy the property.
The recipient of the deed will enjoy any benefits associated with the property like rental income or property improvements.
Since gift deeds cannot be revoked, donors must make sure this is the right decision ahead of time.
Recipients should do some due diligence prior to signing the deed.
They should conduct a title search to identify any existing liens, encumbrances, or other legal issues.
Additionally, they should research the transfer taxes associated with gift deeds in the jurisdiction where the property is.
Finally, it is highly recommended that they obtain title insurance when transferring property in this manner.
This type of insurance protects the recipient from any undisclosed or unknown title defects.
Final Thoughts
A deed of gift is a stellar tool for any landowner hoping to pass their land or property onto a family member or close friend.
Whether you want to pass the property onto them now or when you die, using this legal document offers strategic estate planning, tax advantages, and the opportunity to avoid probate.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.
Prior to starting Gokce Capital, Erika received a Bachelor of Architecture from the University of Southern California and a graduate degree in Urban Policy from Columbia University. She worked as both an architectural designer and engineer in New York before joining the New York City Department of Housing Preservation and Development.
Erika currently lives in the New York Metropolitan area with her spouse, daughter and cat. She is originally from Chicago and still considers herself a midwesterner at heart.
Erika also loves to read, write and travel (fun fact, she has visited all 50 states and more than 30 countries!). Her new book, Land Investing Mistakes: 11 True Stories You Need To Know Before Buying Land, is now available on Amazon.