Have you lent money to one of your children to buy a car or transferred ownership of a property to their name? These are cases of lifetime donations, which are more common than we usually think.
This legal figure allows a person to dispose of their assets for the benefit of another without the need to wait for death. In this article, we explain what a lifetime donation or “inter vivos” donation is, what taxes need to be paid, what types there are, what advantages it offers, and how it differs from inheritance.
What is a Lifetime Donation?
A lifetime donation is an act by which a person (donor) freely transfers the ownership of a property to another person (donee). It is regulated in Article 618 of the Spanish Civil Code, which states the following:
The donation is an act of liberality by which a person freely disposes of a thing in favor of another, who accepts it.
The donation is perfected when the donee accepts it and is formalized by a public deed before a notary.
Taxes on Lifetime Donations
In Spain, donations are subject to the Inheritance and Donations Tax (ISD). This tax is transferred to the autonomous communities, so the amount to be paid can vary from one place to another. The common elements to consider are as follows:
Taxable Base
It is the value of the donated goods at the time of the transfer. This value must be declared and is used to calculate the corresponding tax.
Reductions and Discounts
There are reductions in the taxable base and discounts on the amount to be paid that depend on the degree of kinship between the donor and the donee. For example, in many autonomous communities, donations between parents and children have significant discounts. Additionally, some autonomous communities offer additional reductions if the donation is intended for the acquisition of the donee’s habitual residence or if the donee has a disability.
Payment of the Tax
The tax must be paid by the donee, that is, the person who receives the donation. The deadline for making the payment is 30 days from the date of the donation.
If the donation is a property, the municipal capital gains tax will also have to be paid.
Types of Lifetime Donations
There are several types of lifetime or “inter vivos” donations, each with its specific characteristics. They are as follows:
Universal and Singular Donation
In the first, a large part of the assets is donated except for a small part that must remain with the donor to subsist. The singular donation refers to a specific asset, which can be a house, a family jewel, or a work of art, for example.
Pure and Simple Donation
It is the donation in which the donor transfers the asset without imposing conditions or charges on the donee. It is the most common and direct form of donation.
Onerous Donation
It is one in which the donee must fulfill a charge or condition imposed by the donor. It may involve, for example, the payment of a debt, the preservation of the asset for a certain time, or the obligation to care for the donor.
Remunerative Donation
This type of donation is made in recognition of services rendered by the donee to the donor. Although it is a donation, it has the character of remuneration for services.
Donation with Reversion Clause
In this case, the donor reserves the right to recover the donated asset under certain circumstances, such as the death of the donee before the donor.
Donation with Reservation of Usufruct
In this case, the donor transfers the ownership of the asset to the donee but reserves the usufruct, that is, the right to use and enjoy the asset during their lifetime. This modality is often used in donations of real estate because it allows the donor to continue living in the property or receive rental income.
Advantages of Lifetime Donations
Making a lifetime donation provides various advantages for both the donor and the donee. They are as follows:
Planning Asset Management
It allows the donor to plan the distribution of their assets during their lifetime, ensuring that their assets are allocated according to their wishes. This can be useful in cases where the donor wants to benefit certain heirs specifically or wants to avoid future conflicts between beneficiaries.
Reduction of Family Conflicts
The donor can reduce the likelihood of conflicts among heirs because the transfer of assets is carried out clearly and transparently, with the consent of all parties involved.
Avoiding the Succession Process
A lifetime donation allows avoiding the lengthy testamentary succession process and facilitates a faster and more direct transfer of assets. This is an advantage when the donor wants to ensure that the assets reach the beneficiaries without delays or legal complications.
Flexibility and Control
The donor maintains greater control over how and when their assets are distributed and can adapt donations to circumstances. Additionally, with clauses such as the reservation of usufruct or reversion, the donor can ensure that their needs and wishes are respected even after the donation is made.
Differences Between Lifetime Donation and Inheritance
Although both lifetime donations and inheritance involve the transfer of assets, there are differences between the two legal figures, which are as follows:
Time of Transfer
The lifetime donation is made while the donor is alive, while the inheritance is executed after the death of the testator. This means that the lifetime donation can be used as a real-time estate planning tool.
Formalization
Lifetime donations require a public deed and express acceptance by the donee, while the inheritance is formalized through a will (which may or may not be granted in a public deed) or, failing that, according to the rules of intestate succession. Therefore, the lifetime donation implies greater clarity and legal certainty at the time of the transfer of the asset.
Reversibility
We have already seen that lifetime donations can include reversion clauses that allow the donor to recover the assets under certain conditions, something that is not possible in an inheritance once the estate has been distributed.
Impact on the Legitimate
The lifetime donation can affect the legitimate portion, which is the part of the estate that the testator cannot freely dispose of because it is reserved by law for certain heirs known as forced or legitimate heirs. Donations made during the donor’s lifetime can be collatable, that is, they can be considered when calculating the legitimate portion, affecting the final distribution of the assets.
In short, the lifetime donation is a valuable tool within Spanish inheritance law that offers flexibility and control over the distribution of assets. With proper planning and advice, it can provide tax benefits and, most importantly, reduce family conflicts.
If you are considering making a lifetime donation, you can consult with our team of expert lawyers to study the situation, analyze whether the legal requirements are met, and determine the best way to do it.
