The usual way of making gifts in your lifetime fall under those that are “Inter Vivos” gifts, which translates to those “between the living” and those which are made in a Will adhering to section 9 of the Wills Act 1837. The one rarely used exemption that falls between these is “Donatio Mortis Causa”.
Roughly translated to “deathbed gifts”, this concept derives from ancient laws used by the Romans that were introduced and developed into English law. However with the spike in deaths due to the Covid-19 pandemic, it is thought that this exemption is on the rise as a result of the lack of time people have been given to put their affairs in order.
How do death bed gifts work?
The use of Donatio Mortis Causa is a common law doctrine (rather than a statutory provision) that allows a dying person to make a gift to another person that comes into effect on their death, provided certain criteria are met.
The difference with this type of gift and those left in a Will is that upon the death of the dying person, the asset being gifted is not passed to a personal representative (the person dealing with the Will or estate after death) but rather, directly to the person receiving the deathbed gift. The gift subsequently falls outside and is therefore not subject to any provisions left in a Will or under the intestacy rules but may still be subject to IHT or create an IHT liability for the estate.
In order to be valid the dying person must meet all of the rules required to make such a gift. If a deathbed gift is found to be valid, it is treated as being a lifetime gift of the person who made it.
What are the rules?
In order for a deathbed gift to be valid the person dying (Donor) must meet the following criteria:
- The Donor of the gift must be aware that they are likely to die and the gift is therefore made in contemplation of death;
- The gift is contingent on the Donor dying;
- The Donor must part with the gift or it must be “delivered” in some way by the Donor to the person receiving the gift (Donee).
Likely to die or in contemplation of death
The test for this part of the rules requires that the death be “within the near future” or “impending” and not a gift that is made upon contemplation of “immediate death” and therefore gifted upon an actual deathbed.
The cause of death need not matter; only that the Donor anticipated that they did not have long left to live. Therefore a deathbed gift does not require a person to be in a hospital or made in their final breath to be valid.
The gift is contingent on the death of the Donor
Very simply, in order to satisfy this rule there must be “clear intention to give, but to give only if the Donor dies”. Therefore there must be an intention for the gift to take effect and become absolute only in the event that the Donor dies. If the Donor makes the gift and recovers, the gift is revoked.
The Donor must part with the gift or “deliver” it to the Donee
Under this rule the Donor must part with dominion, control or possession over the asset being gifted. The rules require a mental intention to part with control but also requires sufficient physical delivery of the gift. For example the Donor must either physically gift the asset (i.e. an antique) or something that represents the gift (i.e. keys to a box containing a gift). If a cheque, it must clear before the Donor’s death or before the bank is aware of the death.
It does not matter that the intention and physical requirements are met at the same time and the delivery does not need to be undertaken by the Donor themselves. This means that it can be undertaken by an ‘agent’ on behalf of the Donor and likewise delivered to an agent of the Donee if needs be.
Following the case of Sen v Headley, Land and Property is now confirmed to be a valid subject matter that can be gifted via a deathbed gift.
Can deathbed gifts be challenged?
As an asset can be given away on someone’s death and outside of a Will, these types of gifts are highly contentious and often challenged in the court by families or those who would have benefited by the Will or intestacy.
Because the Donor must be likely to die or contemplating death when making the gift the courts are very careful in considering the criteria required and granting them validation.
Common arguments against these types of gifts include whether the Donor had the requisite mental capacity to make a rational decision to make the gift in the way they did, or whether their lucidity was affected by any drug or treatment they were receiving at the time. Alternatively “Misinterpretation” and “Undue Influence” are also commonly put forward as the gift is often only made with the Donor and Donee present.
With Covid-19 spreading and particularly vulnerable people trying to recover, it is thought that there will be more use of this type of gifting and contentious cases disputing their validity in the near future.
If you would like advice on deathbed gifts, please contact the Private Client team at Hodge Jones & Allen by completing the contact us form or ask to speak with the private client team on 0808 252 5231.