Three instruments, three different points in time, three different costs. Almost every mistake in this area comes from picking the instrument for one reason, usually saving money, and discovering later that it did something else as well.
The gift deed: ownership moves today
The Transfer of Property Act, 1882 defines a gift as the transfer of certain existing movable or immovable property, made voluntarily and without consideration, by one person to another, and accepted by or on behalf of the donee during the lifetime of the donor and while he is still capable of giving. Acceptance during the donor's lifetime is part of the definition, not a formality.
For immovable property the instrument of gift is compulsorily registrable, and the Registration Act, 1908 expressly keeps instruments of gift out of the list of documents whose registration is merely optional. So a gift of a Bengaluru flat means a registered deed and stamp duty payable now, at the rate applicable in Karnataka, which should be confirmed for the current year and for the relationship between donor and donee before you decide anything.
The critical feature is that it is very hard to undo. The Act allows a gift to be suspended or revoked on the happening of an event agreed between the parties which does not depend on the will of the donor, and it says in terms that a gift which the parties agree shall be revocable wholly or in part at the mere will of the donor is void to that extent. In other words you cannot reserve the right to change your mind. That is exactly what parents transferring a flat to one child later wish they had done.
The will: nothing moves until you die
A will is ambulatory. It speaks from death, it disposes of what you own at that moment, and it can be revoked or replaced as often as you like while you are alive. It attracts no stamp duty on execution and registration is optional rather than compulsory. Our guide on making a valid will in India sets out the execution requirements, which are short and are where wills actually fail.
The costs of a will are deferred rather than absent. Somebody has to prove it after you are gone, which means finding an attesting witness. Somebody may have to obtain a grant if an institution insists. And a will is the instrument most often challenged, because the person best placed to explain it is not available.
The trust: management during life or after death
Under the Indian Trusts Act, 1882 a trust of immovable property is valid only if declared by a registered non-testamentary instrument in writing signed by the author or the trustee, or by will, and the Act requires reasonable certainty as to intention, purpose, beneficiary and trust property, with a transfer to the trustee unless the trust is by will or the author is himself the trustee. A lifetime trust and a trust created by will therefore take effect differently. Compare the formalities and costs of the chosen route, together with the continuing administration that the trust requires.
The commonest error I see in NRI families is gifting a property to one child during the parent's lifetime to avoid a future dispute, and creating a much worse one. The parent loses the asset, loses the ability to change the arrangement, and sometimes loses the home. If you want a transfer to take effect on death, use a will. If you want a transfer now with conditions, say so in the instrument, because a condition depending only on your own will is void.
Choosing, in four questions
- Do you want to retain control over a gift taking effect on death? A will can usually be revoked while you remain competent. The terms and revocation rules of any alternative arrangement need separate review.
- Does someone need the asset now? A child who needs the flat as security for a loan, or an elderly sibling who needs the income. A lifetime transfer answers that; a will does not.
- Does the asset need managing rather than transferring? A minor beneficiary, a business, a property that must not be split. That is the trust case, and it is the only reason worth paying for a trust.
- What does the front end cost? Get a quantified figure for the stamp duty and registration on a lifetime transfer of the specific property to the specific person, and weigh it against the deferred cost of a will. In simple estates the will usually wins.
Points that bite NRIs in particular
- Execution from abroad. A gift or settlement deed of Indian immovable property has to be registered in India, which means either a trip or a properly authenticated power of attorney executed in the manner Indian law recognises for a principal residing outside India.
- Nationality of the recipient. Where the person taking is a foreign national, foreign exchange rules are a separate layer and they treat agricultural land, plantations and farmhouses differently from a flat.
- Two wills, one revocation trap. If you hold wills in more than one country, check that the later one does not revoke the earlier one. Our guide on the Indian will an NRI should make deals with the clause that causes it.
- Do not mix the instruments in one document. A deed that purports to gift now but says it takes effect on death is an invitation to litigation. Decide which one you mean.
Our fuller comparison of a gift deed, a will and a settlement deed sets the three out side by side with what each costs and when each takes effect, and it is the piece to read before you instruct anyone to draft.