Once a client decides to make a gift it is essential that both ownership and possession of the donated asset passes to the intended beneficiary. In a simple case when I give my granddaughter GBP100 for her birthday the gift is complete when she has the cash, but what of more complex cases? For many assets there are detailed and specific rules, and paperwork which needs to be completed to ensure a valid transfer. Compliance failure may only come to light at the donor’s death, perhaps when a member of the family wants to know who has the assets they were promised, and result in either an incomplete gift or a failed gift with the consequence that assets supposed to be donated many years previously remain in an individual’s estate resulting in an inheritance tax liability much higher than anticipated and perhaps negligence claims if you were the person charged with completing the donor’s instructions; at best at least one client will be upset.

This article covers a range of assets and circumstances commonly encountered in practice.

Furniture and other personal possessions can pass by a recipient removing property from the donor’s house (with their permission). Sometimes a gift is evidenced by symbolic gesture: the donor says all the furniture in a particular room belongs to a donee; however, failing to remove the property may result in reservation of benefit with the asset remaining a deemed asset of the donor. Indeed if chattels are to remain in the donor’s possession it is better to prepare a deed to confirm the position – French v Gething (1921) All ER Rep 415.At a practical level this should always be considered where several members of a family live in the same property. If I say to my son the Picasso prints are yours, but they remain in the house, how is the gift confirmed after he moves out if I have only made a verbal indication.

In Winter v Winter (1861) 4LT 639 a verbal gift was successful because the subject matter (a barge) was already in the recipient’s possession; similarly handing over a single chair (to represent other furniture) created a successful gift – Lock v Heath (1892) 8 TLR 295.

Ownership of Freehold or Leasehold property can only pass by deed and if relevant the deed must be stamped for the gift to be enforceable. Thus any property transfer such as the creation of a lease must be by deed with similar considerations applying to declarations of trust involving land and any subsequent transfers of the declared interests.

Two cases from different eras illustrate the position. In Richards v Delbridge (1874) LR 18 Eq 11 a donor wrote on a lease that it had been given to a member of his family. No deed so no gift. By contrast in Mascall v Mascall (1984) 81 LSG 2218 a donor handed over a signed Land Registry transfer which was sent off for stamping. The parties (Father and son) fell out but the gift was made; signing the transfer completed the deed and the gift could not be revoked.

A gift by cheque is only effective when the cheque is cleared because a donor could have second thoughts and stop the cheque. The rules are different in Scotland where the gift would be effective once the recipient has possession of the cheque.

In Jones v Lock (1865) 1 Ch App 25 a father late home and in trouble with his wife (a familiar tale even today) gave a cheque to his infant son and apparently suggested it was the son’s to keep. The cheque was never presented so, even if there had been an intention to make a gift, the gift was ineffective.

Generally shares are transferred by Stock Transfer form, delivered to the company (or its registrars) with the share certificate, which then causes a new share certificate to be issued. However any gift of shares is only complete once any administrative obstacles have been overcome; such obstacles might include the need for pre-emption rights to be exhausted, or if the recipient is a director of the company, the board consenting to the transfer.

In Re Fry (1946) CH 312 Treasury consent was required before the transfer could be effective and because this could have involved action by the donor the gift was ineffective. There have been cases that suggest an oral declaration of trust over a proportion of an individual’s shareholding might be void for uncertainty, but equally other cases where such declarations have been held to be valid. If there is likely to be doubt it is best to make sure a stock transfer is processed and the shares transferred into the name of the intended recipient or their trustees.

Many clients who want to make gifts have neither cash nor appropriate assets they can afford to give away but if both donor and recipient are members of the same family partnership a gift can be made by transferring part of the donor’s capital account to the intended recipient. But the gift is only effective when the annual partnership accounts showing the transfer are signed by all the partners unless there is clear evidence of an irrevocable gift (which there rarely is in practice). Simply deciding to make the transfer and recording the gift in the partnership accounting records, or telling the accountant to make the transfer, will not complete the gift. Until the accounts are signed any proposed transfer is only a revocable gift (compare the position with gifts by cheque).

A practical problem is that once the accounts have been drafted and sent to the partners the approval copy often sits in the partnership office and is not signed until next year’s accounts are due; result delay in starting the seven year clock.

There is a client meeting in April 2010 to discuss the accounts to 11 October 2009 showing a gift included in those accounts. The accounts are sent to the clients but the envelope sits in the estate office until November 2010 when they are finally signed, after the third reminder, and sent back to the accountant. The intention was to make a gift in April 2010, but only the November 2010 date starts the seven year clock running.

Alternatively some clients make gifts by exchanging cheques drawn on the business bank account. Father draws a cheque in favour of his son, the son banks the money in his private account and it is cleared. A few days later the son writes a cheque in favour of the partnership with this money being credited to his own capital account. In such circumstances it might be prudent to prepare a partnership minute confirming the introduction of capital. But what if you are less than diligent in exchanging cheques? Suppose a cheque is issued in favour of the son who presents the replacement cheque on the same day as the gift cheque is to clear because the partnership bank account has insufficient overdraft facility to allow the first cheque to clear. There might be doubt as to whether a genuine gift has been made because the steps in the chain cannot stand alone and accordingly it might be safer to make book transfers between capital accounts in the manner discussed above.

As indicated, for many gifts the compliance regime can be short circuited by deed, but the reality is that most clients consult their advisors infrequently with our intervention often after the apparent gift has been made. Many clients take the view that if there is a proper method of making a gift (some of which are outlined above) why should they go to the additional expense of legal documentation?

Finally, on a related issue, did the donor actually have any intention to make a gift? Although ‘possession may be 9/10ths of the law’, ownership or possession of an asset must pass as a consequence of positive action or intent. In Cole (a bankrupt) (1963) 3 ALL ER 433 CA a husband took his wife to their new house and said ‘it’s all yours’, but he never parted with possession (because he continued to live in the house) and there was no evidence of the wife taking possession. There was no gift and no receipt so no gift but be aware, particularly in partnerships, that a unintended gift may be made by entries in the accounts. Under the Partnership Act 1890 s44(b)4 if the partnership agreement is silent, or worse there is no agreement, then asset surpluses belong to all partners in profit sharing ratio not to just the partner who is the legal owner potentially resulting in gifts by the legal owner either when assets are revalued or sold if the accounting trail is imprecise.

The correct paperwork must be completed. Families fall out, the ‘wrong sibling’ receives the gift or the description of the gift may be less than precise. If a gift can be attacked because it is not in proper form then it is likely to fail. Once we are aware of a gift or proposed gift we need to make sure we deal with the transfer of ownership appropriately; if it goes wrong, or even if we do nothing to put matters right, someone somewhere will know it is our fault.