Knowledge…Shared…Multiplies
A lifetime gift is a gift that you give to another during your lifetime. It takes effect while you are alive rather than at the time of your death, as in the case of a will. There are certain circumstances in which a lifetime gift maybe a better option than leaving a gift in a will.
Three ways of making a lifetime gift
If, for example, you have one child, you may decide to leave your house to that child during your lifetime rather than and do so in a will. This can be done in at least three ways.
You can make an outright gift of your house to your child so that they become the sole owner of the house from the moment the gift takes effect. This is done by a deed of gift.
Or you can create a joint tenancy, the effect of which is that you and your child will own the house as joint tenants. Your child would immediately become a joint owner of the house together with you. However, once you die and your child survives you, they become the sole owner of the house. No further legal transaction would be required.
Or you may give your child the house by way of deed of gift subject to a life interest to yourself.
Best option
The important thing to remember is that once you make a lifetime gift of an interest in your house and it is properly registered in the Deeds and Land Registry, that act cannot be changed. You cannot take back what you gave.
With that in mind, you want to choose a course of action that would allow you to have the use of your house during your lifetime while at the same time being able to pass it on to your child in the most efficient and cost effective way.
Which is the best course of action from an estate planning point of view?
With an outright gift, whereby your child immediately becomes the sole owner of the house, the house is no longer yours. You could live in it. But you do so at the mercy of your child. You run the risk of your child falling out with you and wanting to put you out of the house; or your child getting married and you and their spouse not being able to get along, and the spouse wanting you
out of the house; or your child mortgaging the house and defaulting and the financial institution selling the house.
A joint tenancy would be preferable to an outright gift since you are still an owner of the house, though jointly with your child. Consequently, your child cannot put you out of the house. But neither can you put your child out of the house. However, your child and their spouse, by their conduct may make life miserable for you. A joint tenancy is also better than an outright gift in that no financial institution would accept a mortgage of the house without you signing it.
Best of all is a gift subject to a life interest for yourself. With that your child only becomes the full owner of the house after you die. Not only can your child not put you out of the house but you can legally put them out while you are alive.