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Deeds of Gift, and Your Title
Sometimes, a gift of a house is made with the intention of mitigating (reducing, or avoiding) Inheritance Tax. If the donor continues to live in the house, it is generally quite unwise to assume that the gift will be effective to save tax, and we always advise against this.
There have been many schemes set up, promoted and sold, no doubt at great expense, to try to get around these difficulties. Almost universally, such schemes founder after a great deal of further expense and litigation. When they succeed, the gap they have revealed is rapidly filled by statute.
Such gifts may also be used in an attempt to evade creditors. Anticipating bankruptcy, somebody may give away their property in an attempt to defeat the trustee in bankruptcy. Frequently, a parent, fearing that they may soon come to live in a residential home is also concerned that their hard-won home may be swallowed in fees. The law therefore allows that in certain circumstances such transactions to be set aside so that the property can be again made available to the creditors, or to the local authority.
This creates a situation where, once the property has been given away, the title becomes defective, and may retain that defect for several years. Many lenders will be quite unwilling to lend on the property, in case the title of borrower is set aside. If the gift is set aside, in order to recover the value of the house for the trustee in bankruptcy, anyone buying from the person to whom the house was given may lose what he bought. His lender, in turn, would then be left with no security for the loan.
To work around this problem, usually an insurance policy has to be purchased. These policies may be expensive and are based upon the value of the property as a whole, and not the amount of the gift (which may be less) or the loan.
There are other issues to consider. We have to be clear who is our client; that no pressure has been brought to bear on that client to make the gift; and that the client will be properly protected, and have proper provision for his or her future accommodation. These issues can be very delicate, but must be faced. Please ask for more advice about your own case.
|Important: Please note that our law-bytes are retained for archival purposes only. The law changes, and these notes are often, now, out of date. You must take direct advice on your own personal situation and the law as it currently stands.|
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