Mitigating the stress and impact lifetime gifts can unintentionally create

Kieran Forsyth, associate, Hugh James, 21/09/2023

Kieran Forsyth

Lifetime gifts, often seen by many as a way to mitigate inheritance tax and generously share wealth and assets with loved ones, can be a source of significant stress and emotional turmoil for individuals and families.

The complexities and implications involved in such claims can create a challenging and anxiety-inducing situation.

Whether you are the donor, recipient, or an interested party, understanding the reasons behind the stress associated with lifetime gift claims is crucial.

1. Complex family dynamics

Lifetime gift claims often intersect with intricate family dynamics, bringing underlying tensions and conflicts to the surface. Disputes can arise between siblings, children or other family members over perceived favouritism, entitlement, or misunderstandings regarding the intentions of the gift. These dynamics can intensify stress, as individuals navigate not only legal and financial complexities, but also delicate relationships and emotional bonds.

Top tip – communicate

Before making a lifetime gift, speak to all parties involved and ensure, where possible, all know the reasons behind the gift and your intentions. It’s worth noting that although lifetime gifting doesn’t require the person leaving the gift to share equally between parties, it is worth considering if all parties’ response to the gift will be positive. If there is a risk that someone might feel unfairly treated, we strongly recommend seeking legal advice prior to any gifting being made. 

2. Financial implications

The financial implications of lifetime gift claims can be substantial, adding another layer of stress to the situation. Donors may experience anxiety over potential depletion of assets or uncertainty about their own future financial security. 

Recipients may feel pressure to manage and preserve the gifted assets effectively, especially if they are burdened with expectations or obligations associated with the gift. Furthermore, the fear of financial inequality among family members can lead to heightened stress and strained relationships.

Top tip – speak to an Independent Financial Adviser (IFA). 

While it is impossible to guarantee future outcomes, prudent financial planning can provide peace of mind, financial stability and protection against future market fluctuations. The recipient of the gift will also feel at ease, knowing the gift can be used as they wish.

3. Legal complexity

Navigating the legal framework surrounding lifetime gift claims can be overwhelming. Understanding the intricacies of estate planning, tax implications, and contentious probate law requires expert guidance. 

The legal process involved in validating or contesting a gift claim can be time-consuming, costly, and emotionally draining; especially if the proper advice from an expert is not sought. The fear of potential legal battles or prolonged disputes can exacerbate stress, as individuals face uncertainty and the potential disruption of their lives and relationships.

Top tip – Ensure you know the legal and tax implications of a gift.

4. Preservation of relationships

Lifetime gift claims can strain even the strongest of relationships. Disputes over gifts can lead to fractured family dynamics, resentment, and lasting damage to personal connections. The fear of irreparable harm to relationships can intensify stress, as individuals strive to find a balance between protecting their interests and preserving the bonds that matter to them.

A recent story highlights this point further, where an 82-year-old Grandmother who gifted her £1.4m home of 40 years to her daughter, found herself in a 10-year dispute with the same daughter. In this complex case, the court ordered that the grandmother must leave her home and awarded ownership of the property to the daughter.

In this case, the gift was not communicated to the daughter at the time the gift was made, we believe there was a lack of legal advice and there were no safeguards in place to protect the gifting individual when the relationship between the grandmother and her daughter became toxic.

Top tip – communicate and ensure the wishes and any conditions of the lifetime gift are made clear from the start. By seeking legal advice before making gifts, you can ensure the gift is made correctly and limits the risk of future claims.

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