Which is better: leaving inheritance or making a donation when you are alive? At Stelae, we explain the characteristics of each option and tell you the pros and cons of each so that, when planning your estate, you can decide between a living donation or inheritance.
What is a donation in life?
A donation in life is a contract by which a person transfers their assets immediately and irrevocably to another person.
In this voluntary agreement there is a donor and a donee, with the latter being the beneficiary of the donation.
It is a different concept to widow’s usufruct which is the right to use and enjoy another person's property, but without obtaining ownership of it.
What is inheritance?
An inheritance is the legal act by which a person determines that their assets will be passed on to their heirs when they die.
This transfer is not only of assets, but also of the rights and obligations associated with them.
Key differences between a donation in life and inheritance
The main difference between a donation in life and inheritance is that the former is immediate whilst, in the latter, the death of the person transferring the assets must have occurred in order for their heirs to be able to receive them.
There are other key aspects that differentiate them which can be seen more clearly in the following table:
Donation in life
Definition: An act by which a person transfers ownership of an asset to another person free of charge and voluntarily, while they are alive.
Time of transfer: The transfer of property takes place during the lifetime of the donor.
Legal formalities: Requires a public deed before a notary and acceptance by the donee.
Taxation: It is subject to Gift Tax, the rate of which varies according to the autonomous community and the relationship between donor and donee.
Revocability: Generally irrevocable, except in specific cases (ingratitude of the donee, breach of conditions, etc.).
Control and administration: The donor can control the destination of their assets and make specific dispositions during their lifetime.
Inheritance
Definition: Transfer of property, rights and obligations from a deceased person to his or her heirs.
Time of transfer: The transfer takes place after death.
Legal formalities: Requires death certificate, will (if there is one), declaration of heirs (if there is no will) and partition of the inheritance.
Taxation: It is subject to Inheritance and Gift Tax, which also varies according to the Autonomous Community and the degree of kinship.
Revocability: Not applicable, as it occurs upon death. However, the heir may renounce.
Control and administration: The control of the destination of the assets is posthumous and is executed in accordance with the law and the will.
As we can see, when choosing between a donation in life or inheritance, different aspects in Spanish legislation must be taken into account in order to know which is the best option, depending on your patrimonial situation.
Comparison: which is the best option?
When deciding between a donation in life or inheritance, it cannot categorically be said that one option is better than the other. There are circumstances in which the first option is in your best interest and others where the second option is more suitable.
When is inheritance a better option?
- To avoid taxes in the short term, as in some autonomous communities the Inheritance and Gift Tax may be more favourable than the Gift Tax.
- If you want to have greater control of your assets during your lifetime, as the owner will keep them until their death.
- In order to carry out complete planning of the estate, since the assets can be distributed in an orderly manner and in accordance with the wishes of the owner through a will.
When is a donation in life a better option?
- To obtain long-term tax benefits. It can be more fiscally advantageous in certain cases and in certain autonomous communities, as it is possible to take advantage of the bonuses and reductions in the Gift Tax.
- Because it helps the beneficiaries immediately. As they receive and enjoy the assets straightaway, it is useful in cases of financial need.
- For better planning and order. As it allows an orderly distribution of assets during life, possible conflicts are avoided between heirs and future procedures are simplified.
Choosing between donation in life or inheritance depends on multiple factors, such as the economic situation of the donor and the beneficiaries, the specific taxation of the autonomous community and personal and family circumstances. It is advisable to consult a legal or tax advisor to make the most appropriate decision in each case.
Frequently asked questions
Can I reverse a donation in life?
As a general rule, a donation in life is irrevocable. However, the Spanish Civil Code mentions different situations in which this could be done. For example:
- Failure to comply with the conditions agreed in the donation.
- Ingratitude of the donee.
In these cases, the donor would have to file a legal action to claim the revocation of the donation, stating the reasons.
When is it better to opt for inheritance?
Inheritance is preferable to a donation in life when you want to avoid short-term taxes, have more control over your assets or when you want to carry out a complete and orderly planning of your estate.
What taxes must be paid in each case?
A living donation is subject to Gift Tax, the rate of which varies according to the autonomous community and the relationship between donor and donee. Inheritance, on the other hand, is subject to Inheritance and Gift Tax, which also varies according to the autonomous community and the degree of kinship.
