A Real Estate Gifting Transaction
A real estate gifting transaction between two relatives is a rather common tool to transfer property between family members, and a rather prudent tool for financial planning and savings due to the tax benefits in force in such transactions.
What is a gifting transaction?
Article 1 of the Gift Law, 1968, (In Israel) defines the concept of 'gift':
a. "A gift is the granting of a property without return";
b. "The gifted item may be real estate, personal belongings or rights".
Granting of a right to certain real estate without return is, therefore, considered a gifting transaction.
For all intents and purposes, it is, in fact, a real estate transaction, including the mandatory drafting of a written agreement, reporting the transaction to the real estate taxation authority and the mandatory tabu registration.
The legislator does not take the term "without return" lightly and in situations where there is a partial return, be it meager, in the future or not even monetary, the entire transaction will not fall under the legal definition of a gifting transaction.
Many different and varied types of real estate gifting transactions exist; for instance, a full transfer of ownership of a property, a transfer of part of a property, a transfer of rental rights of a property and so on.
Why should you undertake a gifting transaction?
Real estate gifting transactions may have several reasons and/or advantages.
1. The actual gift giving – a person may wish to give a gift to someone else, and most gifting transactions are between family members, such as parents and their children or grandparents and their grandchildren;
2. Exemption from betterment tax – a real estate transaction undertaken without return from a person to their relative is exempt from payment of betterment tax (a tax levied on the gains from selling a property). For the purposes of this exemption, a "relative" of the gift giver is defined as a spouse, including a common law one, who has resided with them in the property and has been keeping a shared household with them for at least a year prior to the giving of the gift, a parent, a grandparent, a descendant of one of them, a spouse of any of them or a sibling and their spouse;
3. Decreased purchasing tax – gifting transactions between relatives are mandated to pay a third of the purchasing tax which would have been
levied on the transaction should it not have been a gift, something which may bring about extremely significant savings with the right planning;
4. Preventing inheritance disputes – carrying out a real estate gifting transaction while one is still alive to one's future heirs will prevent a scenario of objections to the will by other inheritors who aren't pleased with the will's contents and any claims of various faults afflicting the will. In addition, a will may be changed at any time (so long as the person drafting it is considered fit to make changes), while a gifting transaction is final after it has been registered, which affords it legal certainty.
May the gift giver renege on the gift after it has already been given?
At any time before the registration of the gifting transaction is completed with the land registry (tabu), article 5 of the Gift Law, 1968, provides
three causes a court may use to allow the gift giver to go back on the commitment to give the gift.
1. When the gift's recipient has not changed their economic status based on the gift giving commitment, save for a written abandonment
of said permission;
2. If the remorse was caused by deplorable behavior by the gift's recipient or their family towards the gift giver;
3. A significant degradation in the gift giver's economic status.
How does one go performing about a gifting transaction?
A real estate gift giving transaction is a real estate transaction for all intents and purposes.
Such a transaction should be accompanied by a lawyer versed in the relevant legislation. As part of said transaction, the parties must sign an agreement and other legal documents as delineated below:
1. A gifting agreement properly defining the terms of the gift, as agreed to in advance by both parties;
2. The gift giver must sign a "gift giver" affidavit;
3. The gift's recipient must sign a "gift recipient" affidavit;
4. Forms reporting to the tax authority;
5. A bill of sale or transference of leasing rights and, if necessary, property transfer documents for the Israel Land Authority or the occupying company.
Law & Co. Law Office, we are specializing in accompanying real estate transactions.
Published on the Jerusalem Post October 2016
Professional review – legal advice