Latin and Death Bed Gifts are alive and well!

It is not uncommon for a terminally ill person (the Donor) to gift assets to a loved one in contemplation of their anticipated demise. Such “Death Bed” gifting, whilst not exactly a “lifetime gift”, is neither a “testamentary gift” (reserved for Wills). How does the LAW view such situations and can an aggrieved beneficiary under a Will challenge the gift if the effect is to have severely reduced the value of any remaining property passing under a Will?

The concept is known legally as a Donatio Mortis Causa (or DMC for short!). The test requires the recipient of the gift to establish 3 facts:

Firstly – the gift must be made in contemplation of death. The Donor must actually believe he is going to die. This may be because they are already seriously ill or they are approaching major medical treatment.

Secondly – the gift must be conditional on death. Therefore the gift only takes effect upon the death of the Donor. If they survive, the gift fails!

Thirdly – The Donor must part with what is legally described as “dominion” over the property to be gifted. This concept is often difficult to define, but like an “elephant”, you know one when you see one! A couple of examples may demonstrate the point:

  • Physically handing over the item, eg jewellery or the passbook to a building society account may be sufficient. Similarly, handing over a key to a safe deposit box which contains unregistered title deeds to land may successfully gift the land to the Donor (a gift which carries, in today’s market, a considerable monetary value).
  • However, the use of technology and the internet makes gifting some assets more problematic. How do you deal with a building society account that no longer has a passbook and is transacted solely “on-line”? How can you successful pass dominion of Registered Land which in fact is both computerised and is not even evidenced by the ownership of a Land Certificate? These are questions that may well need to be debated before the Court.

The Courts will always be vigilant in scrutinising evidence advanced to support of a DMC. Whilst there is clearly scope for the unscrupulous to cheat and lie their way to a gift, it must be pointed out that the DMC can be established solely upon the evidence of the recipient if their evidence is deemed trustworthy.

Finally, when taking advice upon defending or challenging a DMC, careful consideration of the Donors mental capacity and the question of undue influence must be undertaken. Capacity has an effective “sliding scale”. A modest gift, requires only a modest degree of understanding by the Donor. If however the gift is substantial, making any Will effectively worthless, the level of capacity will be the same that would be required to make a will as laid down in the leading case of Banks v Goodfellow [1870]. More problematic is the burden of proof required if an allegation of undue influence is raised. Straight forward lifetime gifts can see the Courts raising a presumption of undue influence depending upon the relationship between Donor and recipient (requiring the recipient to prove that they had not unduly influenced the Donor). However, in the case of Wills, the burden is reversed. A disappointed beneficiary must prove that there was undue influence – the recipient has to prove nothing. The “million dollar“ question however is whether the DMC is counted as a lifetime transaction (i.e lifetime gift) or a testamentary act (i.e. effectively a Will gift)? At present there is no decided case law!

Conclusion

Whilst this doctrine continues to present on a regular basis to Lawyers, it cannot be emphasised that for the protection of both the recipient of the intended gift and for the general financial wellbeing of the remainder of the Estate, the uncertainty of these gifts could be removed completely by the writing and or updating of an individual’s Will. In this way, it is clear that the gift is to be made, the extent and context of the gift can be established and the effect of the gift upon the overall financial position of he Donor can be accurately assessed. To proceed in any other way, will only cause unnecessary heartache, uncertainty and costs!