In life, we often give gifts, while we also enjoy receiving them. Along the way, we are sure that we know what a gift is and what its significance is.
However, are gifts really completely “free”? Are the obligations and rights of the parties in this legal relationship the same when the gift is given and when the gift is, for example, a pair of earrings? Is it the same if the gift is a pair of diamond earrings or some trinkets?
Additionally, the question often remains in the practice of what if, for example, someone we gave a gift we feel no longer deserves it? Is there a way to seek the gift back, after a divorce from a spouse for example, or some similar life (mis)fortunes?
Due to such clients’ concerns, we wanted to explain with this text the details related to gifts of high value, which every donor and donee should know.
1. What is a deed of gift
A deed of gift is a contract whereby, for instance, you, as a donor, give something to a donee, or you undertake to give a certain thing or a property or to transfer some rights to the beneficiary – donee.
Therefore, we have 2 sides to this relationship.
This means that in order to conclude a deed of gift, both parties must agree on its essential elements:
- the unencumbered nature of giving and
- the subject of the gift.
Unencumbered nature means that you cannot, in return, claim compensation or a favor from a person you gifted, as that would represent a burden to their property. So, the gift must be, in one word – free.
Such a legal transaction is called a good deed and it is a way for a donor to present gratitude or to reward their donee.
However, the mere consent of will is not sufficient for the deed of gift to be valid, but it requires a real act, the transfer of assets. If a written deed of gift is made, it obliges the donor to make a real act – i.e. donate gifts.
However, as the gift can be given orally, the gift can be transferred even before or without the written agreement, and such an act will be considered a gift. Of course, this refers exclusively to movable items, since the immovable property is subject to a more severe regime to a certain extent, so the gift thereof must be made through a written agreement solemnized with a notary public.
The object of the gift can be the donor’s property, which includes tangible assets or any other rights they possess. Hence, gifts may encompass various items: movable or immovable property, consumable goods, or items intended for future purchase, whose acquisition is assured but not yet finalized. Additionally, through gifting, one can confer actionable rights or perform acts that benefit property, such as forgiving a debt or settling someone else’s liabilities.
What cannot be the subject of a deed of gift are a person’s rights and easements related to personality. For example, the right to inheritance, moral copyright, permission to hold weapons, etc…
Surely, as with everything, there are some reserves and exceptions to the rule, even with gifts…
- Specifically, when it comes to the rule of unilateral giving, this rule can be made relativized when it comes to one of the deeds of gift types. That is the deed of a gift with a burden. In this case, donors may retain the right for themselves or instruct a donee to assign another right to a third party or do something to someone;
- Although a donor is not responsible for the deficiencies of the thing, due to the fact that the gift is a good deed, in the case of a deed of gift with cash as the subject, the beneficiary of a gift shall be entitled to the legal default interest rate in the event of a delay in fulfillment;
- Thus, even when the burden of any gift exceeds the value of the gift, the donor is responsible for the legal and material defects of things.
2. Which regulation should be applied?
If you were to look for legal rules relating to gifts, you would be surprised. Although it is frequently seen in practice, a deed of gift is not regulated by the applicable Law on Obligations. Therefore, the provisions of the Serbian Civil Code from 1844 are still applied to this contract.
Nevertheless, the overarching principles outlined in the Law on Obligations are applicable to gift deeds, just as they are to all other contractual agreements. These encompass various provisions, including those addressing the impermissibility of the contract’s foundation or subject matter, contravention of mandatory regulations, public policy, customary practices, and similar considerations.
With the deed of gift, attention should also be paid to the impact of the rule of Inheritance law. The gift is counted in the inheritance to the heir unless it is a customary and less valuable gift and unless it is stated otherwise or there was a different intention. In addition, if a gift is made to another in the last year of the donor’s life, thereby compromising the necessary part of the heir, such a gift may be contested.
On the other hand, in relation to the gift, the Family Law governs the legal treatment of the gifts made during the marriage.
3. Property as a gift
It’s great when someone gives you an apartment. But did you know that any acquisition of property, even a gift, is burdened with tax?
It is true that the value of the property, for example, cannot be compared to the amount of the tax on its transfer. However, if on the one hand, we have the impression that the gift is free, and on the other hand, we observe the amount of taxes, in this case, this burden does not really seem insignificant.
You are obliged to pay the taxes on immovable property, a gift, cash and other possible gift items for which the Property Tax Law prescribes the obligation to pay gift tax.
However, with the obligation to pay a gift tax, there are certain exemptions and grounds for exemption from this obligation. They precisely aim to facilitate the transfer of rights between persons who are in a special relationship.
According to the Law, a taxpayer is not a person who receives things or rights in the same year from the same person in an amount not exceeding the amount of 100,000.00 dinars.
Donors’ first-degree relatives are also exempt from the gift tax, that is, their children, parents, as well as the spouses.
The second-degree heirs, such as: parents, brothers, and sisters, in some cases, when they have a special relationship with the subject of gifts, may also be tax exempt. These cases are explicitly regulated by the Law.
What is the amount of that tax?
The beneficiaries are fortunate enough to pay 2.5% of the value of the gift they receive for their acceptance of the free gift.
Nonetheless, beneficiaries who are second-degree relatives of the donor enjoy specific privileges. If none of the tax exemptions outlined by the law are applicable, they will be required to pay a 1.5% tax based on the value of the gift.
Notary public’s fee
Although you now have in mind how much it may cost you to receive a gift, you certainly do not think about the notary and their “slice of the pie”.
If the subject of the gifts is immovable, the costs of the notary vary depending on its value. However, when the gift is made to first-degree relatives, the notary public’s fee for this contract is reduced by 50%.
4. Can a gift be “withdrawn”?
Generally speaking, yes, it can, and in legal terms, that’s known as a gift revocation. However, a deed of gift may be revoked only for explicitly contractual or legal reasons.
Legal reasons go within the context of changed circumstances concerning the parties or their mutual relationship. These reasons aim to preserve the meaning of the unencumbered giving and to protect the donor against the evil intention and the bad behavior of the beneficiary.
The legal reasons for the annulment of gifts are:
- Ungratefulness, i.e. gross negligence toward a donor or someone close to them is one of the reasons why a donor can revoke a deed of gift.
- A donor can revoke a gift in case of a lack of basic necessities for life.
- A gift made to a spouse during the course of a marriage may be revoked after the divorce if the value of that gift is disproportionately larger in relation to their common property.
On the other hand, the usual gifts given during the marriage do not have to be returned even after the divorce, i.e., the annulment of the marriage.
The right to revoke a gift can also be given to a third party if they are the donor’s creditor, a person that the donor is obligated to support or a necessary heir.
A lawsuit is used for the revocation of the gift that is subject to the deed of gift, or when the gift is handed over to a donee, and the court decides on the merits of such a request.
However, some gifts can never be revoked in any way, and these are the previously mentioned usual gifts, gifts made for charity and prize-giving gifts.
So, do not be afraid of the calls of an ex-partner who asks you to return the perfume, scarf or speakers that they gave to you a lifetime ago, or “they will sue you…”
5. Deed of gift – when is it (not) the best choice?
A deed of gift is often made as an alternative to other legal transactions for the transfer of property. Most often, the reason behind this is that the parties would use the specifics of this agreement to avoid the burden imposed by other legal transactions.
For example, due to the many benefits in terms of tax and notary public remunerations, the advantage of this contract is noticeable in comparison to the purchase contract.
However, the underlying weakness of the deed of gift is the possibility of revocation for various reasons. Therefore, it is good to know the different options that can protect the will to give something to a particular person.
Alternatives to the deed of gift, which are irrevocable by third parties, and in that sense provide the greatest legal security, are the contract on the transfer and distribution of life assets and the contract of lifelong support. However, each situation calls for a different solution, so don’t forget to analyze all the circumstances of the particular case so that you can be sure that you have chosen the option that most suits your particular case.
