We often are asked about making gifts during your lifetime (called inter vivos gifts^[1]) or whether to deal with them under the Will. This can, if not dealt with appropriately, raise unintended consequences. For instance, the person that receives the gift during their lifetime retains a right to sue the estate (called a family provision claim). Here, Cath Champion, our senior associate estate lawyer, explains the potential consequences of both courses of action.

1. What constitutes a gift made during your lifetime?

A gift made during your lifetime involves an intention to give, an intention to accept and showing that intention by some form of action.[2] For the gift to be a valid gift, it must be of money or personal property, voluntarily given, unconditional (nothing expected in return) and charitable (nothing gained from giving the gift).[3]

Gifts made during your lifetime are not required to be documented. However, a gift that is more than a moderate amount of money or a significant object to another person or an entity should be documented to evidence the fact that this gift has been made (except where the gift is to a registered charity). Documentation can be via letter, agreement or deed. Generally, the greater the value or significance of the gift, the greater the formality of the document recording the giving of that gift.

Gifts made during your lifetime to charities

If the gift is to a charity, the potential benefits of gifting the gift during your lifetime include the following:

• A tax deduction may be available to you;
• You are able to get a feeling of satisfaction;
• It may induce a habit of philanthropy in your family and establish the value of giving back to society in a tangible way; and
• It may be a way to further support a charity where you also donate your time as a volunteer.

Gifts during your lifetime to non-charities (ie to individuals)

If the gift is to a non-charity (for example, family member/s or associated companies or trusts), the potential benefits of gifting during your lifetime include the following:

• You may be able to see the results of your giving and experience a feeling of satisfaction;
• You may wish to be involved in the project that your gift helps bring about; and
• You are aware of end of life and are able to see how distributions are being made.

Other advantages of giving a gift during your lifetime:

Regardless of whether the gift is to a charity or non-charity, major advantages include the following:

• If gifted during your lifetime, rather than a gift under your Will, the gift cannot be reduced as part of a family provision claim[4] if the Will is challenged[5]; and
• You can leave the gift directly to the beneficiary or set up a structure (such as a trust) and leave the gift to the beneficiary on trust in order to have some input into the guidance and control of the trust during your lifetime.

Disadvantages of making a gift during your lifetime

Potential disadvantages of making a gift during your lifetime, either to a charity or a non-charity include the following:

• A transfer of assets may be dutiable which potentially would not have attracted duty if gifted under your Will;
• The gift may result in liquidity problems for you. For example, if your primary liquid asset does not become liquid until after your passing, such as a life insurance policy;
• Making a gift during your lifetime of an asset may result in you essentially losing control of your primary business asset, which is not in your best interests – especially if you’re relatively young or your lifespan is expected to be lengthy or is unknown;
• Creating wealth may be more important than distributing wealth at the time in your life you intend to make the gift;
• Although the gift is final and removed from your assets, the gift is still subject to the Family Law Act 1975 (Cth)[6], the Bankruptcy Act 1966(Cth) and Centrelink considerations regarding means testing and value of assets (including the pension);
• As the gift is unable to be compelled to be returned, you have lost the asset for the purposes of meeting obligations under the Family Law Act 1975 (Cth) and the Bankruptcy Act 1966(Cth) to meet ordinary debts or to meet normal or abnormal living expenses; and
• The gift forms part of the assets of the gift recipient for the purposes of the Family Law Act 1975 (Cth), the Bankruptcy Act 1966(Cth) and Centrelink considerations regarding means testing and value of assets for that gift recipient. In some circumstances where the gift is land, or house and land, the gift may inhibit the gift recipient’s capacity to access either Commonwealth or State First Home Owner Grants, or to obtain stamp duty concessions under the Duties Act 2001 (Qld).

2. Gifts made under your Will

You may as an alternative wish to leave a gift under the terms of your Will, provided the assets form part of your estate.

Advantages of a gift pursuant to the terms of your Will

The benefits of making a gift under your Will as opposed to a gift during your lifetime include the following:

• Stamp duty will not be imposed on the transfer/gift if the gift is made in accordance with the terms of your Will;
• You may establish testamentary trusts under your Will for your beneficiaries (ie your children/grandchildren) and leave them their gifts on testamentary trust. This provides significant benefits for the beneficiaries of the testamentary trusts, including:
  • Income tax benefits where beneficiaries are under 18 years of age;
  • Benefits in respect of capital gains tax;
  • Provides trustees with discretionary powers to maximise family tax benefits;
  • Provides some limited protection in matrimonial disputes if drafted appropriately;
  • Provides some protection where a beneficiary later becomes bankrupt;
  • Provides a long-term asset holding vehicle; and
  • Offers advantages where there is a minor, elderly, spendthrift or disabled beneficiary that needs to be cared for.
• Offers some capital gains tax concessions in respect of property that may not otherwise attract specific capital gains tax concessions; and
• Limits liquidity concerns when delaying major gifts and ensures you retain control of assets during your lifetime.

Disadvantages of a gift pursuant to the terms of your Will

The disadvantages of making a gift under your Will as opposed to a gift during your lifetime include the following:

• The asset subject of the gift must form part of your estate. This means it must be owned by you personally, not as joint tenants or owned by a company or trust;
• If the assets of the estate are insufficient to pay all legacies within the Will, there are very complicated rules of construction in relation to how the estate is to be divided; and
• The asset subject of the gift may be subject to a family provision claim (refer to comments below).

Family provision claims

In Queensland[7], a deceased person’s spouse, child or dependant (Eligible Applicant) is entitled to make an application to the Supreme Court for adequate provision to be made from the estate of the deceased person for his or her proper maintenance and support.

To make such an application, the Eligible Applicant merely needs to have been left out of the Will or felt they were not adequately provided for in the Will. If successful, they will have provision of the estate set aside in their favour to the detriment of the named beneficiaries even if this is contrary to the terms of your Will.

3. What does this mean for you?

If you have complicated family structures, are making unequal distributions amongst beneficiaries or have omitted an Eligible Applicant from the terms of your Will, it may be worthwhile obtaining further legal advice. Hence, you make wish to consider whether making gifts during your lifetime is appropriate or you could consider alternative nominations or appointments to reduce the assets forming part of your estate that could become subject to a family provision claim.

For further information about making gifts, please contact Mahoneys’ senior associate, Cath Champion, on (07) 3007 3777 cchampion@mahoneys.com.au.

[1] This article does not deal with donation mortis causa gifts, which is a gift made by a person during their lifetime conditionally upon and in contemplation of the death of the donor (Dufficy v Mollica [1968] 3 NSWR 751 at 758 per Holmes JA).

[2] Rowland v Stevenson [2005] NSWSC 325.

[3] Papathanasopoulos v Vacopoulos [2007] NSWSC 502.

[4] Refer to Section 2 – Family Provision claims.

[5] Subject to a notional estate claim being made in New South Wales where the Succession Act 2006 (NSW) applies.

[6] Gifts may have an effect on the division of matrimonial property still remaining in your hands. We recommend that you seek specialist Family Law advice in this respect.

[7] Section 41 of the Succession Act 1981 (Qld). Note there are significant differences in New South Wales including notional estate claims. The scope of this article does not cover New South Wales estates.

Written by Cath Champion

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