(Article published in the Oct 8, 2002 issue of TODAY, Business Section)Giving away ones property is deceptively simple. The law itself abets this false sense of simplicity by requiring formalities which are easy to comply with: (1) donations of personal property be made orally or in writing; (2) oral donations need only be coupled by simultaneous delivery of the thing or of the document evidencing the right donated; (3) only when the value of the gift exceeds P5,000 should the donation be written; (4) and only donations of land need be in a public, i.e. notarized, document. Sure, donations must be accepted by the donees, but acceptance, more often than not, consists of no more than a few lines expressive of gratitude written in the deed of donation itself.
But because giving away ones
property, except for the very rich, entails a reduction in the donors store of
properties that substantially reduces his or her capacity to meet exigencies for the
donors remaining life, many prefer to attach a provision or two reserving for the
donor some right of possession, control or enjoyment during even after the execution of
the deed of donation. Giving way to this temptation not to cut and cut clean is inviting
big trouble as demonstrated, once again, by two decisions recently issued by the Supreme
Magat, penned by Justice Sabino De Leon, Jr., involved a donation by a widowed mother to her four surviving children of a parcel of land in Cavite. The deed of donation and the acceptance, which was in the same document executed on December 17, 1975, stated, in the vernacular, that the donor was thereby giving the property to her five children absolutely and irrevocably. However, the donation was to take effect on the donors death ("magkakabisa lamang simula sa araw ng akoy pumanaw sa mundo"). The expenses of her burial were charged against the property, the four donees to equally divide the remainder among themselves.
On the same day, the donor and her donees executed another document ("Kasulatan") which was attached to the deed of donation. It provided that the relevant certificate of title was to remain in the possession of the donor and the property could not be sold or mortgaged during her lifetime.
The case got to the courts after the donor executed, on February 6, 1979 a deed of absolute sale to one of the donees. The rest, naturally, sought the annulment of the sale. Obviously, if the December 1975 donation was inter vivos, the February 1979 sale was invalid; if mortis causa, then the sale was valid. The trial court held that the donation was mortis causa; on appeal, the Court of Appeals held that it was inter vivos. The Supreme Court thus had the task of definitively deciding the issue.
The Supreme Court, in a decision that students and practitioners alike should read for its lucid examination of current jurisprudence, correctly pointed out that the defining factor is the expression of irrevocability. Reservations of possession and enjoyment, as well as prohibitions against disposition or encumbrance, do not, by themselves, impair the irrevocable character of a donation expressly made to be so. The latter are to be harmonized with the expressed irrevocability as mere assurances that, while naked ownership has been effectively transferred during the lifetime of the donor, other rights short of ownership, such as those of use and possession, may continue to be enjoyed by the donor.
Maglasang, penned by Justice Ma. Alicia Austria-Martinez, dealt with a deed of conditional donation made by the donor to her brother on February 17, 1992 and four other deeds to others on January 14, 1995. Like the Magat donation, the donations were to be effective upon the death of the donor. But, in addition, they provided that in the event that the donee died before the donor, the donation was to be considered automatically rescinded. When the donor died, her relatives, learning of the donations, brought an action to annul the donations and to have themselves declared, together with the donees, as co-owners in equal shares, presumably as intestate heirs, of the donor.
The Court had no difficulty declaring the donations as mortis causa. The deeds of donation in Maglasang, unlike the Magat donation, contained no clear provision passing proprietary rights to the donee prior to the donors death. On the contrary there was the statement making it effective upon the death of the donor. This was confirmed by the donees themselves when, in their Acceptance, they referred to the gift as "Deed of Donation mortis causa". Moreover, there was a decisive statement that the transfer would be considered void if the donor should survive the donee. All these show that the gifts were intended to take effect upon the donors death.
If the complications of an incomplete gift, demonstrated by Magat and Maglasang are not enough to discourage estate owners from seeking to have their cake and eat it too, the tax code looms as the ultimate deterrent. Section 85 of the tax code includes as part of a decedents gross estate subject to the estate tax properties of which the decedent has at any time made a transfer that is intended to take effect at or after death. It also considers part of the gross estate property transferred (except in case of bona fide sale for an adequate and full consideration in money or moneys worth) under which he or she has retained for life the possession of the property or enjoyment of its income. At its top rate, the estate tax schedule amounts to 20 percent.
Thus, a gift, like Maglasangs which is mortis causa is clearly subject to the estate tax. And a gift, following Magat, even if considered inter vivos, will nevertheless be considered as not having been given away for purposes of the estate tax since the donor retained for his life possession and enjoyment of the property.
The clear route out of the maze, for an estate owner who wishes to make a gift but is uncertain about his future, is a two-step device that needs candidness on the part of the donor and cooperation on the part of the donees. Assuming the donees are willing to concede to the donor the use and possession of the gift, then the donor could make an outright, absolute and irrevocable gift to his donees who in turn, in a separate transaction, could set up a reversionary trust in favor the donor. The irrevocable donation clearly makes the gift inter vivos; the reversionary trust can be crafted to cede back to him whatever rights he wishes to enjoy during his lifetime.