How is a settlement different from a gift?


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How is a settlement different from a gift?

  1. 1.  If you have always wanted to provide for someone whom you care for or love, and if you wish to do so by giving them some immovable property without charging from them the market value thereof, you may do so by way of a transfer for inadequate consideration. Such transfers can be in the form of gifts or settlements.
  2. 2.  A "Gift" is the transfer of immovable property, made voluntarily and without consideration, by one person (who is called the Donor) in favour of another person (who is called the Donee). The Donee must accept the gift, or if the Donee is unable or incapable of accepting the Gift, someone must accept the Gift on behalf of the Donee. Such acceptance of the Gift must be made during the lifetime of the Donor, and while he is still of such mental capacity as to be capable of giving. The concept of acceptance of the Gift is of paramount importance. If there is no valid acceptance, there is no Gift. A Gift Deed must be in writing, witnessed by two competent persons, and registered before the competent authorities. The Donor must have title to the properties sought to be gifted.
  3. 3.  A "Settlement" is any non-testamentary disposition, in writing, of immovable property made by one person (known as the "Settlor") in favour of another person (known as the "Settlee") in any one of the following circumstances:  in consideration of the marriage of the Settlee and to provide for him or her thereupon  for the purpose of distributing property of the Settlor amongst his family or those for whom he desires to provide, or for the purpose of providing for some person dependent on him or her, or  for any religious or charitable purpose. A Settlement may be drawn up for some consideration, although it normally would never reflect the true market value of the property in question.
  4. 4. (1) It is a non-testamentary disposition. However, a settlement may also containa clause for reservation of life estate.(2) The Act specifies it must be in writing; so an oral disposition is not asettlement(3) There may be an agreement to make such a disposition(4) If it is not in writing, any record, providing evidence for such disposition, isalso a settlement(5) There must be a settler i.e. the owner of a movable or an immovableproperty.(6) There must be people that is family members or other persons who aredependent on the settler in whose favour the property is to be settled. It may befor religious or charitable purposes
  5. 5.  There are marked differences between gift and settlement.  Gift is not made for any consideration, where as settlement may be in consideration of marriage.  Gift may be made to any person, where as a settlement is mostly made in the favour of dependents.  Gift requires acceptance whereas settlement does not.  The gift is revocable or may be suspended as per section 126 of the Transfer of Property Act on happening of any specified event, which does not depend on the will of the donor unlike that of settlement, which is final & binding once it is executed by the settler.
  6. 6.  Settlement is very simple procedure, where the properties are distributed to the dependents or for religions charitable purposes during the lifetime of the settlor. This avoids future misunderstanding between the beneficiaries/recipients. Settlement can be made only in respect of self-acquired properties.