In this article, I will be sharing every piece of information about the differences between a gift deed and a settlement deed.
A gift deed is a deed in which the owner of property transfers the ownership of the property to family, friends, relatives or others voluntarily who does not have any ownership right on property, whereas in the case of the settlement deed, co-owners of a property, who are having pre-existing rights divide their property among themselves amicably either before the court or outside the court.
What is a gift deed?
A gift deed makes it possible for the owner of the property to gift his property to anyone, without any consideration, it also avoids any future dispute relating to succession or inheritance. Moveable or immovable property can be gifted, from the donor to donee.
A donor is a person who gifts the property and a donee is a person who received the gift of property.
A gift deed that is registered, is evidence in itself. It can only be made in favour of living persons only. If a person dies before the acceptance of a gift deed, such gift deed is void.
Gift as defined in section 122 of Transfer of Property Act,1882:
122. “Gift” defined.—“Gift” is the transfer of certain existing moveable or immoveable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee.
Acceptance when to be made.—Such acceptance must be made during the lifetime of the donor and while he is still capable of giving. If the donee dies before acceptance, the gift is void.
Ingredients of gift deed:
- Ownership must be transferred
The transferor must have absolute ownership over the property to be transferred, and he must vest it in the favour of the transferee. Absolute ownership implies all rights and liabilities in respect of the property. Only absolute ownership can be tranferred.
- Of existing property
The property which is to be transferred can be of any kind moveable, immoveable, etc but it must be in existence at the time of making a gift and must be transferable within the meaning of section 5 of Transfer of Property Act,1882.
- No consideration involved
As per section 122 of the Transfer of Property Act,1882 the property must be transferred without any consideration. The consideration here holds the same meaning as given under section 2(d) of the Indian Contract Act,1882. Mutual love and affection do not fall under the ambit of consideration.
- The transfer must be voluntary with free consent
The transfer should be made voluntarily i.e, with free will, without any force, coercion, undue influence and fraud. The burden of proof while proving that the transfer is made voluntarily with free will lies on the donee.
- There must be acceptance of the gift
The donee must accept the gift. The property cannot be gifted against a person’s consent. The acceptance can be either expressed or implied.
If the donee is incompetent to contract i.e, minor or insane, the gift is to be accepted by the competent person on his behalf.
What is a settlement deed?
A settlement deed is an alternative to a lawsuit. It is a legal document by which any dispute relating to property among the relevant parties is settled.
The property can be moveable or immoveable. The property must be joint property and not a self-acquired property.
This is a quicker and harmonious way to settle the property dispute than litigation.
In this process, a third person, usually a lawyer or senior family member helps the family to settle disputes. It is not a transfer of property. It is neither a gift nor a transfer of property as per the taxation laws.
So separate transfer of property documents and family settlement agreement is to be made, to cause the actual transfer.
Ingredients of a settlement deed:
- Parties to the settlement deed
Two parties are involved in a settlement deed, i.e, The settlor who is the executant and the Settlee who is the beneficiary or the claimants. A settlor is a third person, usually a lawyer or senior family member. And the settlee are members of the family involved in the property dispute.
- Voluntary arrangement
All the parties should settle the dispute voluntarily and amicably. No decision is to be imposed on anyone. There should be no fraud, force, coercion or undue influence to be involved. It should be on the basis of good faith.
- Terms of settlement
Terms of the agreement should be clearly mentioned in the deed or agreement so as to no confusion arises in the future.
- Pre-existing rights involved
In the case of a settlement deed, all the parties have pre-existing ownership right over the property. No new ownership right is vested in favour of anyone. The pre-existing right is transferred, allocated or recognized.
Distinction between gift deed Vs. settlement deed
| Settlement deed | Gift deed |
| A settlement deed or family arrangement is based on disputes or arguments among family members. | In a gift deed, a property is given out of love and affection |
| A settlement deed can be exected among family members only having pre-existing rights in the property. | A gift deed can be made in favour of anyone i.e, family, friends, relatives or anyone who does not have any ownership right in the property. |
| A settlement deed involves a degree of relationship. | A gift deed can be made in favour of anyone either in relation or not. |
| It can be even oral in which case it does not require registration and stamping. A settlement deed can also be oral therefore, registration is not a necessary element. An oral settlement deed does not necessarily require to be stamped. | It requires compulsory registration as it creates, assigns, limits, or extinguishes rights or titles in a property. A gift deed requires compulsory registration as it involves the transfer of ownership rights. A gift deed needs to be stamped. |
Frequently asked questions| FQS
A registered settlement deed is better, as in gift deed stamp duty is more, therefore it is advised to prefer a registered settlement deed.
Though both of the provisions deal with the transfer of property, gift deed and settlement deed are different. A gift deed is a deed in which the owner of property transfers the ownership of the property to family, friends, relatives or others voluntarily who does not have any ownership right on property, whereas in the case of the settlement deed, co-owners of a property, having pre-existing rights divide their property among themselves amicably either before the court or outside the court.
A written settlement deed can be registered. If it is oral, it does need to get registered, though it still remains valid.
Yes, a settlement deed can be made orally.
An executed settlement deed can never be revoked.
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