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Many parents prefer to share out their real estate among their children while they are alive with two aims in mind: to help out their offspring sooner rather than later, and at the same time to prevent any squabbles between the future heirs. From a taxation point of view, it�s the same one way or another, whether you pay gift tax or inheritance tax.

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In the first case, the beneficiary has to pay tax on the value of the property as declared in the title deeds. In this case the interested parties can juggle this figure to suit their purposes, within certain limits, of course. What you cannot do is put a value on the property which is outrageously below market price, as this will arouse the suspicions of the taxman leading to dire consequences.

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Depending on the final value put in the deeds, a progressive tax rate is applied ranging from a minimum rate of 7.65% and top rate of 34%. In addition you will have to pay the cost of the notarial deed and for the property to be registered in the Property Register.

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The beneficiaries of the property cannot rest on their laurels in their new house, because they have just thirty days in which to actually pay the gift tax once the property is signed over. This may well force the beneficiary too rush to the bank to apply for a loan to cover this tax, unless they are lucky enough to have enough savings.

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In this process of transferring ownership of a property a notary is essential, not only to make the operation official, but also for the advice they can give to the parties involved. In the notary's office all doubts and grey areas can be cleared up, which is always a relief.

Unlike an inheritance, a donation requires the beneficiary's consent. A donation is also irrevocable, so that once a property or asset is handed over there is no way for the benefactors to change their mind and take the gift back. As the popular saying goes (actually a misquote from Shakespeare) What's done is done, and can't be undone.

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Another possible way of covering up a donation is to turn the operation into a fictitious house deal. That is to say, the parents can receive a "virtual" payment from their children, although the taxman tends to be wise to this kind of evasion� of gift tax. In any case the notary should be able explain to the parents what the different alternatives are so that the donation is made in a way which suits all the interested parties.

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� Reserved life interest. The parents might want to consider giving themselves a life interest in their property (use of the house while they live, as well as the right to rent out the property). Thus the son or daughter has no right over the property in question while their parents are alive, a situation which will change radically on their death. This clause is perfect for parents who plan to donate their family home without having to leave it in their will. If either of the beneficiaries wants at some future date to sell the property while the parents are still alive, they need their express permission.
� Reserved right to dispose of their property. The parents leave the door open for a future change of heart, since they do not rule out the possibility that -if they fall on hard times-, they may want to put the property on sale. This means that the donation only becomes definitive if the parents do not exercise their right to dispose of the property while they are alive.
� Cancellation clause. The parents can stipulate certain contingencies under which the donation would be nullified, for example, the change in marital status of an unmarried son or daughter. In other word the donors can effectively tear up the contract in the event of any circumstances they have previously set out in a notarised contract.