There are two ways through which you can transfer your assets to anyone including your children-by gifting during your lifetime or bequeathing through a Will. Both the modes have their own pros and cons so let us discuss which option you should use.
Transferring your asset during your life time through gift
Anyone who is competent to contract can gift his assets to anyone. Some person like minor or a person of unsound mind or an undischarged insolvent are incompetent to enter into any contract. You can make a gift in favour of a living person who has to accept the gift during the lifetime of the person making the gift.
Some persons believe in instant gratification and would prefer to see that their assets are handed over to the intended beneficiaries during their life time to derive the satisfaction and to avoid any litigation which may arise after death. This objective of instant gratification can be achieved by gifting your asset to the intended person. Movable assets can, generally, be gifted just by hand delivery but gifts of immovable property need to be done through a gift deed which attracts stamp duty at market value of the property as on the date of execution of the gift deed and is also required to be registered. In case the gift in favour of certain blood relations, some of the states like Maharashtra have provision for payment of nominal stamp duty.
In addition to the stamp duty implications for gifting your assets, there are certain income tax implications also in the hands of the recipient unless he is covered within the category of relatives specified under the income tax laws. In case a gift is made in favour of a person who is not specified relatives and aggregate value of all the gifts received by the recipient exceeds Rs. 50,000/- during the year, the recipient has to include market value of the assets received as gifts in his income and pay tax on such gift like regular income. Please note that person giving the gift does not have any income tax implication.
Bequeathing your assets through a Will
Unlike the gift in case of a Will the transfer of asset bequeathed becomes effective only after death and you are free to change your Will any time and any number of times in case you change your mind. As a Will is neither required to be stamped nor is it required to be registered unlike a gift deed and as India does not have any inheritance tax, the assets get passed on to the intended beneficiary with minimum cost. Though the non-relative recipient has to pay tax on the value of the gifts received during the year in case the aggregate value of all the gifts received during the year exceed the threshold, the assets received under a Will are tax free even in the hands of non-relatives.
In case a person does not make a Will or the Will made does not cover all the assets, such assets pass on as per the personal succession law applicable to the person. Under Hindu Succession Act, 1956-the law of succession applicable to Hindu, there are no restrictions on a Hindu person about extent to which he can bequeath his assets as well as to whom he can do.
Which one you should go for?
It is very difficult to answer this question due to prevalence of different circumstances for different persons. However, one can evaluate certain factors before one zeros in on a specific course of action. So for example if your wish is to ensure that all or certain assets owned by you pass on to persons of your choice after death only and you want to enjoy and have control over those assets during your life time, will is a better and more advisable way. A Will is also advisable where you want to ensure smooth succession of your assets after your death and your purpose is to ensure that some specified persons only gets hold of your assets to the exclusion of all or some specific legal heirs.
However, if you need to help someone who is needs the help immediately, it can only be ensured through a gift. This mode to transfer of your assets should be resorted to only when the need to transfer the asset is urgent at that moment. If you transfer all or substantial part of your assets to your legal heirs during your lifetime, you may probably have to face dire situation in your old age. We must have witnessed such cases around us in abundance. The case of a famous industrialist having to stay in a rented house is very fresh in our memory.
Moreover, it is a bad move to transfer your assets just for tax planning purpose. Logically it is foolish to lose control of your assets just to save a few bucks in taxes. Gift as mode of asset transfer is advisable when you wish to ensure and witness transfer of a full or part of your estate during your lifetime to avoid any litigation in future. Remember; never ever gift away substantial part of your wealth as long as you are alive. You can partly gift away part of your assets while bequeathing the residual through a Will.
Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant on Twitter
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