Gift deed for money: how to donate money so that everything is legally in order

When is a gift deed for money needed and why is it always a good idea to have one?

Donating money is one of the simplest forms of transferring property for no consideration. The law does not require a written form for a financial gift, even a cash handover or a transfer to an account is sufficient. Nevertheless, in practice, a money gift agreement proves to be very useful and often necessary.

A written contract is recommended (and sometimes practically necessary) especially in the following situations:

1. A financial gift from parents for housing

If parents are gifting a large sum of money to a child, typically to buy or renovate a property, a contract can be crucial. Banks often require the applicant to prove the origin of the money when granting mortgages. The gift deed serves as clear evidence.

2. Donating money between partners or spouses

While gifting between parents and children is usually hassle-free, disputes can sometimes arise between partners. A gift agreement protects both the donor and the donee – for example, in the event of separation or divorce.

3. Larger amounts transferred to the account

If you want to avoid confusion about whether it was a gift or perhaps a loan, it’s best to have everything in writing. For financial flows monitored by the bank, it’s good to have ‘paper’ explaining why the money came and from whom.

4. Donations in a corporate environment or between more distant parties

Here a written contract is almost a must, otherwise a dispute may arise later as to whether it was a gift at all or, for example, a payment for services.

A written contract is therefore an easy way to avoid misunderstandings, disputes about the origin of the money or any subsequent questioning of the gift.

Risks and common mistakes when donating money

Although it may seem that handing over money is the simplest thing that can happen between two people, our experience shows that a surprising number of problems arise even with financial gifts. One of the most common is inadequate documentation. If the gift is not recorded in any way in writing, it can easily be questioned later. A typical example is situations between partners after a break-up, where one claims it was a gift, while the other counters that it was a loan or a contribution to joint expenses.

Similar complications arise between children and parents or between siblings, especially when inheritance or property disputes are being resolved. A clear written document reliably prevents these inconveniences.

Insufficient documentation is often linked to another typical problem – confusion between a gift and a loan. If the donor later claims that he only gave the money as a loan and the donee defends himself on the grounds that it was a gift, the whole situation can turn into a protracted and costly legal dispute. In such cases, who bears the burden of proof is usually crucial, which is always complicated without a written contract. A gift agreement for money can clearly define the intention of the parties and clearly confirm that the gift is indeed gratuitous.

Cash donations are also a risky area. Smaller amounts are usually fine, but large amounts of money passed from hand to hand can cause a number of problems. In an era of increased scrutiny of financial flows, it is often necessary to prove the origin of the money, whether it is the bank when arranging a mortgage, the tax office or other institutions. If there is no record of when and how the gift was made, even gifts of goodwill can become a source of unnecessary complications. A bank transfer in conjunction with a gift agreement always provides the highest level of certainty.

Another area where serious mistakes are made is gifting during foreclosure. If the donor is in foreclosure proceedings, the donation of money may be viewed as an attempt to divert assets and thereby shortchange creditors. Such actions may subsequently be challenged and the gift may be reclaimed by the executor or the lender. In some situations, the gift may even be considered an ineffective legal act.

Overall, the higher the amount being donated, the more important it is to have everything properly written down and documented. A written gift agreement, a properly chosen method of delivery and legal certainty for both parties are inexpensive and very effective in preventing future disputes and unpleasantness.

Gift and loan are the most commonly confused financial transactions. A written contract always makes it clear.

Summary

Donating money is a simple legal act, but to avoid future disputes, it pays to have everything carefully documented through a gift of money agreement. This is particularly essential for larger sums of money, gifts of money from parents for housing, gifts between partners or any situation where you need to prove the origin of the money – for example, when applying for a mortgage. A good contract must contain a precise identification of both parties, the specific amount or purpose of the gift, a declaration by the donor that the gift is voluntary and gratuitous as well as an acknowledgement by the donee that the gift has been accepted, and of course the date and signatures. Donating money also has tax implications – close relatives are exempt from tax, while for other persons the gift may be considered taxable income. At the same time, practice shows that the greatest difficulties arise due to lack of documentation, confusion between a gift and a loan, the transfer of large sums of cash or donation at the time of execution, when the transfer may be challenged. Therefore, for larger sums, a written contract and a transparent way of transferring the money is always the best option, protecting both parties and making it easier to prove to the authorities, banks and courts.