Death bed gifts, or donatio mortis causa ("DMC"), are a bit of a legal quirk. They received some publicity when the residential nil rate band was introduced a few years ago as a possible way of side-stepping the £2m taper threshold. So, what are they?
A DMC is a gift made by a dying person, which is treated as a gift made during that person’s lifetime, but which takes effect on their death. This means that the gifted assets do not pass under their Will or the rules of intestacy. In order to be a valid DMC, the gift must be:
Made in contemplation of death- this means that the person must know that they are dying and that their death is imminent. This excludes gifts made by someone who then jumps on a motorcycle and meets in an accident, or by a healthy person who knows they will die one day. It does not however mean that the death contemplated needs to cause the person’s end; a person with terminal cancer who then gets hit by a bus could still have validly contemplated their death.
The gift must be conditional on death- the idea is that the person would not be making the gift if they thought they may be around to use the asset. The main case on DMCs is Sen v Headley, in which the donor gave his house to his long term friend as he would not be needing it. If the donor recovers then the gift is invalid as it only becomes effective on their death.
The gift can be revoked at any time before the donor dies. Once again, this is because the gift is only effective once the person dies.
The item being gifted must be capable of a DMC. There are several cases on what can be gifted in this way but generally it will include a house, insurance policies and shares but not building society shares (although the case on this point Weston dates from 1902 and so this may be decided differently by a modern court).
The item gifted must be delivered to the recipient. There is (unsurprisingly) a lot of case law on what constitutes valid delivery. In Sen v Headley the donor gave his friend (the recipient) a key to the safety box in which the property deeds were stored. With modern registered title a completed Land Registry Transfer would be needed. In Woodward v Woodward a car was gifted and delivered by the donor telling his daughter to keep the car keys she already had in her handbag as she regularly used the car.
There is however an exception to the requirement for delivery if the gift is being made to an executor. This exception was established by the case of Strong v Bird and allows the gift to be valid without delivery.
So why are they important?
As explained above, if someone can show a valid DMC was made then the item gifted passes outside of the donor’s Will or the rules of intestacy. It can therefore be a useful way of passing assets where there isn’t a valid Will, and insufficient time to put one in place. This will usually lead to litigation if there are beneficiaries who have lost out as a result of the gift, and so it will always be better to have a Will in place. In most cases it will not be too late to do a Will, but you would need to let the solicitor know the level of urgency so it can be completed on the spot (if needed).
One of the most recent cases on DMCs is Keeling v Keeling, in which the brother of the deceased claimed that his sister had gifted her home to him on her deathbed. The house was the main asset in the estate, and it meant that his brother and the children of another brother who had died would receive very little under the intestacy rules which would have divided the estate equally between the 3 siblings. In that case, the courts found that there had not been an valid DMC, as the accounts of what had happened did not add up. However, it does highlight what a significant difference there would have been, had the gift been effective.
In relation to the residential nil rate band, the idea is that a person could, by DMC, gift away enough of their estate to bring their estate value below the £2million threshold and thereby rekindle the residential nil allowance, worth £350,000, which would otherwise be lost. To date I am unaware of anyone who has actually tried this, however the theory does appear to be sound.
As a general rule, our advice is not to rely on DMCs, but instead to put in place detailed and carefully thought out planning during your lifetime. If you would like to discuss your estate planning options, or a potential DMC in an estate, then please contact a member of our Wealth Management Team who would be happy to help.