Validity of a gift - typed and signed, enough to prove ownership?

Sea_Shell

Surely just having two documents (that effectively cancel each other out) can't get round the inheritance rules that easily!?!

"I'm gifting you X"  (but I'd like to hold onto it for now)

"Ok, I'll loan you X back again"


If it were that easy, we'd all be doing it!!!

Just substitute a painting for £X.

doodling

Hi,

Gold_Shogun said:

@ Disjoint

A very important point for the legal validity of a "Deed Of Gift" is that the signing of the document by the DONOR (= the Giver) is witnessed independently by Two people (= NOT the DONEE/Recipient) .... IF an unwitnessed Gift-Document is challenged, there is a very good chance of it being nullified or overturned in the event of a later dispute.

I've drawn & executed a fair few of these for various items for people over the years, and  IF you need/want to get the Gift remade to properly protect & cover yourselves & your FIL, I could perhaps (IF you wish) either PM you a "Sample Base-Draft" (if the forum allows PDF uploads/transfers) OR alternatively post it into a post here in text form which you could modify to suit your needs.

IDEALLY, (but ONLY IF the paintings/items are to remain Post-Gift at your FILs residence), you should have TWO documents ..... The FIRST being the Formal "Deed Of Gift" from FIL -to- You. ..... and then a SECOND "Voluntary Loan Agreement" from You -to- FIL which effectively Loans the same items back to your FIL until his death at which time any Executors would have a Legal Duty to return those items back to you (which avoids any later "Gift With Reservation" claims).

If the paintings had any value then this looks like a very simple and very conveniently documented form of tax evasion and I would expect HMRC to see straight through it after they'd stopped laughing.  The only way to avoid a "Gift With Reservation" issue would be for the person borrowing them to pay a market rate hire charge, if amount paid is zero then I suspect HMRC will assume that one should have been paid, even if the market rate is actually zero.

The real problem in this case may be that the paintings have no (monetary) value and consequently what is written down doesn't really matter; if the someone subsequently disposes of them then all they are liable for is their negligible monetary value.  Practically there is little you can do to avoid this, except by the owner taking the paintings into their own possession.

Malthusian

Gold_Shogun said:

@ Disjoint
IDEALLY, (but ONLY IF the paintings/items are to remain Post-Gift at your FILs residence), you should have TWO documents ..... The FIRST being the Formal "Deed Of Gift" from FIL -to- You. ..... and then a SECOND "Voluntary Loan Agreement" from You -to- FIL which effectively Loans the same items back to your FIL until his death at which time any Executors would have a Legal Duty to return those items back to you (which avoids any later "Gift With Reservation" claims).

This would still be a gift with reservation and the value would be added back into the estate for IHT purposes.

Whether the loan of the painting from the new owner back to the father has a formal agreement or not makes no difference. Either way it is still on his wall and the donor still has the enjoyment of the "gift".

Gold_Shogun

The suggested two-document method does not avoid the IHT 7-year rule for a Potentially Exempt Transfer, and I never suggested it would (Indeed, it actually enhances it as it clearly documents a "Start Date" for the "7 Year Clock".

.... However, if the documents are phrased correctly in terms of time-line & wording (especially the NON-Conditional nature of the Gift and the wholly VOLUNTARY-& non-permanent nature of any LATER Loan Agreement), it can & does avoid and/or greatly reduce the likelihood of "Gift With Reservation" scenarios as the Donor completely relinquishes all control and ownership rights of the (personal chattel) items as in this case for the paintings.
..... The Devil is always in the Detail and the individual circumstances.

I know that at least two of my base-drafts have been used & adapted by family for their Estates & have been accepted for Confirmation / Probate / IHT purposes by the authorites without problem 
.... I would however note that that I personally only ever use these for what are "normal Personal Chattels & family-heirloom type items" such as described by the OP (= Disjoint), and I wouldn't recommend trying to "twist" the base principles into trying to create a "Tax Evasion Scheme" for heritable property or known highly valuble investment-type items (== Banksy-Artwork / Faberge eggs / the Family Home / etc / etc).

My post was NOT about trying to "diddle" the Taxman ... It WAS about trying to help protect the OP & his FIL from possible future abuse or dishonourable actions by possible family-vultures as he requested.... and if the OP doesn't like anything I may say or offer him at no cost, he is welcome to either research it himself to confirm or deny the legal principles OR to simply ignore it if it doesn't suit him.

Sea_Shell

@Gold_Shogun

Thank you for that explanation.  

I can see that this approach could work in a potential family dispute situation.   However, as we read (around these parts) all to often, agreements written on paper are next to useless, if any party just decides to ignore them, point blank, UNLESS you are prepared to go through the courts to enforce said written agreements.

This then becomes emotionally and financially draining.    

Would you agree that the best course of action, for anyone gifting an item, is to actually hand it over there and then?

Keep_pedalling

The simplest solution is for the OPs father to actually hand the “gifts” over, or if they really can’t bare to not have the pictures on the wall gift cash instead. Cash does not have any sentimental value and would actually fall out of his estate after 7 years so has the potential to actually reduce a future IHT bill.

Malthusian

Gold_Shogun said:

The suggested two-document method does not avoid the IHT 7-year rule for a Potentially Exempt Transfer, and I never suggested it would (Indeed, it actually enhances it as it clearly documents a "Start Date" for the "7 Year Clock".

The 7 year rule is irrelevant when you "give" someone a painting but keep it on your own wall, as this is a gift with reservation of benefit and the 7 year clock will never start ticking.

.... However, if the documents are phrased correctly in terms of time-line & wording (especially the NON-Conditional nature of the Gift and the wholly VOLUNTARY-& non-permanent nature of any LATER Loan Agreement), it can & does avoid and/or greatly reduce the likelihood of "Gift With Reservation" scenarios as the Donor completely relinquishes all control and ownership rights of the (personal chattel) items as in this case for the paintings.

It does no such thing. As per the original legislation, a gift with reservation arises where either

• the donee does not assume bona fide possession and enjoyment of the property at or before the beginning of the relevant period
• at any time during the relevant period the gifted property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise
  

If a painting is on your wall, it is clearly not being enjoyed to your exclusion. Whether you make a formal loan agreement to borrow the painting for free or whether the new owner just leaves it hanging there makes no difference.

As others have pointed out, if this logic - "if the donor's enjoyment of their former property could be ended at any time and they have no say in it, it's not a GROB" - was true, then you could give your house to your child, continue living in it rent-free, and when you died your child could say "there's no IHT due because I could have kicked them out at any time, even though I didn't". Doesn't work that way. The legislation is explicit that it is about enjoyment, not control.

I know that at least two of my base-drafts have been used & adapted by family for their Estates & have been accepted for Confirmation / Probate / IHT purposes by the authorites without problem 
.... I would however note that that I personally only ever use these for what are "normal Personal Chattels & family-heirloom type items" such as described by the OP (= Disjoint), and I wouldn't recommend trying to "twist" the base principles into trying to create a "Tax Evasion Scheme" for heritable property or known highly valuble investment-type items (== Banksy-Artwork / Faberge eggs / the Family Home / etc / etc).

If a gift with reservation of benefit has a value then you either declare it and pay IHT or you don't - the latter option being tax evasion. The value of the item is irrelevant to whether it was a GROB or not - there is no monetary threshold in the GROB rules and evading a small amount of tax is still tax evasion. If the heirlooms have no monetary value at all then there was no reason to bring up gifts with reservation of benefit.

Just because a couple of people managed to get away with underpaying IHT doesn't mean anyone else will. They could have simply not told HMRC about the paintings, not faffed about with loan documents, and there's every chance HMRC would still never find out - but people don't come here for the "you might get away with it" school of bad advice.

Manxman_in_exile

Perhaps I've confused myself, but haven't posters got diverted down a IHT route that is irrelevant to the OP?

Yes the OP has explained that this "clever" ruse was originally adopted as a wheeze to avoid IHT on his FiL's death, but the OP's wife doesn't appear to be concerned about tax - she just wants to ensure that she gets the paintings on her father's death and that they don't go outside her "family".  Neither is she interested in being "paid" the value of the paintings - she wants to have the paintings in her physical and legal possession.  If it works out well from the IHT point of view then that is a bonus - but it's not the OP's wife primary concern.

Having experienced a somewhat similar situation where my brother remarried after his wife's death and disinherited his adult children, I can fully understand the OP's wife's concern that what she sees as "her" inheritance is secured and not worry too much about IHT.  Unlike the OP I don't necessarily see his wife's concerns to be OTT.

The OP asked if the wording he described would be enough to establish that his wife legally owned the paintings her father had "gifted" to her while he was still alive.  Whether it's sufficient or not I don't know.  That's why I previously suggested it'd be better for his wife to have a possibly difficult conversation with her father now rather than a full-blown fight with his widow after he's dead.

Seems to me there are three things the OP's FiL can do: (1) physically pass the paintings over right now, or  (2) keep the paintings but get a legal document properly executed that shows the daughter owns them, or (3) leave each painting as specific bequests in his will.  Obviously (1) is the simplest and most certain - the other two may carry varying degrees of doubt.

The thread is about securing the ownership of the paintings.  Any IHT benefits would be nice too, but tax is not the primary concern here.  (Unless the paintings are worth mega-millions, but then I suspect it would be harder to avoid IHT anyway!)

Malthusian

Manxman_in_exile said:

Perhaps I've confused myself, but haven't posters got diverted down a IHT route that is irrelevant to the OP?

Yes. Sort of. It wasn't irrelevant at the start because the OP was still under the false impression that "there would be no taxes payable on such a gift". Even now they have been corrected and have said they will happily pay the tax, off-topic tangents tend to happen on open forums, especially when someone gives duff advice that could cost someone a lot of money in tax penalties. (Not necessarily in this case, but people read information on forums and then go off and repeat it elsewhere or apply it to different situations.)

Both of us and others have also addressed the OP's core concern, i.e. giving the OP's wife the best chance to secure her share of the paintings on the FIL's death.

Mojisola

Does the signed paperwork list all the paintings (and include pictures). 
If it doesn't, what would stop the father or his partner selling some off?