When a Gift Outlives the Donor

What is a gift in case of death?

This instrument is an exception to the general rule that one cannot enter into a contract that takes effect only after death. The New Civil Code (in force since 2014) reintroduced it into the Czech legal order – it had a similar function historically under Austrian law. Thanks to a gift in case of death, you can agree with a specific person now who will receive, for example, your house, car, or savings, without losing this property during your lifetime. You remain the owner of the item during your life and generally continue to use it; only upon your death does the donee gain the certainty that the item will belong to them.

Example: Mr. Nový wants his art collection to go to his grandson after his death. He therefore draws up a gift agreement in case of death with his grandson. The grandson immediately knows about his grandfather's intention and agrees to it. When Mr. Nový eventually passes away, the grandson will become the owner of the collection at the moment of his grandfather's death. He does not have to wait for lengthy inheritance proceedings regarding these paintings – the paintings will not be part of the estate because they passed directly to the grandson by donation.

A gift in case of death thus works similarly to a will, but it is a contract (a bilateral legal act) between the donor and the donee. In this way, the donor can secure specific property for a particular person in advance. And importantly – compared to a will, such an agreement is difficult to revoke (it cannot be changed unilaterally at will). On the other hand, it requires compliance with several legal conditions, which we will discuss further.

Conditions for the validity of a gift in case of death

For a gift agreement in case of death to be valid and effective, it must meet certain requirements set by law. Section 2063 of the Civil Code specifies these key conditions:

• Suspensive condition of survivorship: The contract must explicitly state that the donee will survive the donor. This clause is crucial – without it, it would be a regular gift (or the contract would be interpreted merely as a legacy within an inheritance). Typically, the contract contains a phrase like "This contract is concluded under the suspensive condition that the donee survives the donor." This is what "activates" the gift upon the donor's death.

• Acceptance by the donee: The donee must accept the gift – which usually means that both parties sign the contract. It is therefore truly a contract, not a unilateral declaration by the donor. The donee should know what they are accepting (e.g., a specific property, vehicle, or sum of money) and agree to it. The mere signing of the contract by the donee fulfills this requirement.

• Waiver of the right to revoke the gift: The donor must explicitly waive the right to revoke the gift in the contract. You need not worry – this does not preclude a later revocation of the gift for serious reasons (ingratitude, hardship, etc.); it is more of an assurance that the gift cannot be arbitrarily taken back. This waiver is important to distinguish a gift in case of death from a simple legacy in a will (a legacy can be easily cancelled by revoking or cancelling the will, whereas a gift agreement is binding on both parties).

• Written form: The contract must be concluded in writing. A standard gift agreement containing the above-mentioned requirements is usually drawn up. 

• Document on the waiver of the right of revocation: The law also states that the donor shall issue a document to the donee confirming the waiver of the right to revoke the gift. In essence, this means that the donee must receive written confirmation of this arrangement (usually, they receive one signed original of the gift agreement). If the donor merely declared orally, "I waive the right to revoke," it would not be sufficient – everything must be documented in writing.
  

If any of the above conditions are missing, the gift in case of death is not valid in the full sense. 

Summary of conditions: A gift agreement in case of death must have precisely defined requirements. The best approach is to have the agreement prepared by an expert who will ensure it contains everything necessary. Only then can you be sure that your intentions will be truly valid. If you do not meet the conditions, you risk invalidity or complications – and the donee may ultimately receive nothing.

When to choose a will and when a gift in case of death? 

A will is better if you want maximum flexibility and complexity – you can determine the entire inheritance, appoint substitute heirs in case someone predeceases you, etc. It is a unilateral legal act that you can revoke at will at any time.

A gift in case of death, on the other hand, is useful if you want to transfer a specific item to a specific person with certainty and in advance (the person knows about it and you can discuss it with them), and you do not want that item to be divided among the heirs. Often, both instruments can be combined. The best solution always depends on the circumstances – so consider consulting a lawyer to choose the right combination of tools.

Practical use of a gift in case of death 

How does a gift in case of death work in practice for different types of property? Let's look at a few practical situations and examples:

Real estate (house, apartment, land)

Gifting real estate in case of death is a relatively common scenario – typically, a parent wants to ensure that the family home goes to one specific child after their death. You draw up the agreement in writing (preferably with an expert) and include all the necessary details. However, you do not register anything in the Land Registry yet – the transfer of ownership occurs only after the donor's death, and only then can an application for registration be filed.

After the donor's death, the situation is as follows: The donee becomes the owner of the property only upon registration in the Land Registry, which is carried out by the relevant cadastral office. The donee can file the application for registration as soon as they have the gift agreement and the donor's death certificate.

But there is a catch – the Land Registry cannot register the change of ownership until it is clear who the deceased's heirs are. Therefore, the circle of heirs must first be clarified in the inheritance proceedings with a notary (even though the specific property will not be divided among them, it is necessary to know the legal successors of the deceased for the purposes of the administrative procedure at the Land Registry).

Practice has gradually established that the cadastral office allows the application for registration to be filed even before the conclusion of the inheritance proceedings – the application still lists the deceased donor as the owner (as they are still registered in the cadastre) with a note that their heirs, who are not yet known, are entering the proceedings. The Land Registry then requests information from the notary or the court about who the heirs are.

Once it receives confirmation (for example, a final decision on inheritance or a notification from the notary about the heirs), the registration proceeding continues, and ownership is transferred to the donee with effect from the date the application was filed (which was the day after the death). It may sound technically complicated, but the result is that the donee will get the house; they just have to wait for the formalities. During the proceedings, the property formally belongs to the estate, so no one (not even the donee) can dispose of it until the proceedings are concluded – but it is already clear that it will ultimately go to the donee.

Practical tip: Since a gift in case of death cannot be registered in the Land Registry in advance as a transfer, the donor may worry that they might later change their mind and sell the property to someone else. If you want to give the donee greater certainty, you can include a prohibition of alienation and encumbrance on the property for the duration of the donor's life in the gift agreement (typically, the donor undertakes not to sell or encumber the property with a lien without the donee's consent).

This prohibition can be registered in the Land Registry immediately. This prevents the possibility of the donor later transferring the item to someone else behind the donee's back – and at the same time, it fulfills the condition of waiving the right to revoke the gift (it is clear that the donor does not intend to change their decision).

Example: Mrs. Zelená owns a cottage in the mountains. She has two daughters, but one of them has been taking care of the cottage for years and visits it regularly. Mrs. Zelená concludes a gift agreement in case of death with her – the cottage will go to this daughter after her mother's death. In the Land Registry, everything remains in Mrs. Zelená's name for now. When Mrs. Zelená passes away, the notary discovers the existence of the gift agreement during the inheritance proceedings. The other daughter (who would otherwise have inherited half of the cottage by law) can do nothing about it because the agreement is valid.

The donee daughter files an application to register her ownership right in the Land Registry with the death certificate. The Land Registry waits for the end of the inheritance proceedings (where it is confirmed that both daughters are heirs, but the cottage is not divided because it is the subject of the gift). The Land Registry then registers the cottage in the name of the donee daughter. The other daughter will inherit her share of the rest of the mother's property (e.g., money, an apartment in the city) by law or by will, but she will not get the cottage.

Bank accounts and money

If the subject of the gift is a claim against a financial institution, i.e., in layman's terms, funds deposited in a bank account (or similar financial products), it would legally constitute a gratuitous assignment of the deceased's claim against the said financial institution.

While this is theoretically possible, to the author's knowledge, banks and similar financial institutions exclude the assignment of claims to third parties in their general terms and conditions. It can also be assumed that if the bank account (or the rights and obligations from the account agreement) were not part of the inheritance decision, the bank would not allow the donee to dispose of the subject of the gift, and the donee would therefore not be able to access the gift easily in the short term. 

It is worth mentioning that banking laws allow for the establishment of a so-called disposition of the account in case of death – a bank client can specify in the account agreement a person to whom the bank will pay out the balance (or part of it) after their death, up to a certain amount. However, this is something slightly different – it is a unilateral arrangement with the bank. 

The situation is somewhat simpler if the subject of the gift is cash. Here, the gift agreement becomes effective upon the donor's death, and the donor's legal successors, or the person responsible for administering the estate, should hand over the gift to the donee without further delay. 

Automobiles and movable property

For items not subject to registration in a public register, the situation is simplest. Electronics, valuable collections, jewelry – these are all movable items that are not recorded in any public register. If you gift them in case of death, the donee becomes the owner at the moment of the donor's death. In practice, of course, they will have to prove their right. Here again, the gift agreement and the death certificate will serve this purpose. The surviving heirs have no right to prevent the donee from taking possession of the item.

If a vehicle is gifted, pursuant to Section 8(2)(a) of Act No. 56/2001 Coll., on the Conditions for the Operation of Vehicles on Roads, it is necessary to change the owner (and usually also the operator) of the vehicle in the vehicle register within 10 working days of the transfer of ownership, typically based on a joint application of the current and new owner under Section 8(1)(a) of the said Act. The options for changing the registration and the deadlines set by law for the transfer of ownership will not be applicable in this case.

The current owner, by the nature of a gift in case of death, can no longer file the application, so it is again a question of how to ensure the change of registration in this register. Representation of the donor based on a previously granted power of attorney will not be possible, as the procedural power of attorney terminates upon the principal's loss of procedural capacity (the option to agree on the continuation of the power of attorney after the principal's death under Section 448(1) of the Civil Code only applies to substantive powers of attorney) (footnote - it is of course possible that the relevant administrative authority would ).

Therefore, even in the case of registration in the vehicle register, it would likely be necessary to wait for the determination of the donor's legal successors, or at least the administrator of the estate. It is therefore always advisable to consult an expert on which instrument is best for transferring a specific item and will ensure the fulfillment of the deceased's wishes without burdening the donee/heirs.

Tax implications of a gift in case of death

Taxes are a very important issue. In the Czech Republic, the separate inheritance and gift tax was abolished in 2014 – however, this does not mean that no levies are paid. Receiving a gift may be subject to income tax, while acquiring property through inheritance is exempt from income tax, and only a notary fee is paid. So how does this compare?

• Inheritance (by will or by law): If you acquire property through inheritance (whether based on a will or according to the statutory order of succession), you do not pay any income tax on this acquisition. According to the Income Tax Act (Section 4a(a) of Act No. 586/1992 Coll.), income from the acquisition of an inheritance is exempt from tax. In practice, this means that whether you inherit money, real estate, or a car, the tax office will not demand tax from you. Inheritance is therefore very advantageous from a tax perspective, but one must account for the notary fee, which is calculated according to the notary tariff.

• Gift in case of death (valid agreement): Although the gift is transferred only after the donor's death, from a legal standpoint, it is a gift between two individuals, not an inheritance. The donee thus receives gratuitous income, which may be subject to income tax under Section 10 of the Income Tax Act. Fortunately, the law provides for exceptions and exemptions for gifts.

Specifically, Section 10(3)(c) of the aforementioned Act exempts from income tax gratuitous income received from relatives in the direct line (parents, grandparents -> children, grandchildren) or in the collateral line, if they are siblings, uncles/aunts, nephews/nieces, spouses, registered partners, or persons who lived with the donor in a common household for at least one year before their death. In practice, this means that most gifts within the family are exempt – so if a father gifts a house to his son in case of death, the son will not pay tax on it (the income is exempt).

But beware of gifts outside the family! If the donee were, for example, a good friend to whom the donor is not related, and they did not live in a common household, then this donee would have to pay income tax on the value of the gift. For individuals, the tax rate is 15%. So, for example, if a neighbor gifts a cottage to another neighbor in case of death and they are not related, the donee neighbor would have to include the value of the cottage in their tax return as "other income" and pay tax on it.

Tax summary: For relatives, a gift in case of death is as tax-advantageous as inheritance – they will not pay anything extra to the state. For donees outside the circle of close relatives, however, a gift in case of death is less advantageous than a will – for example, bequeathing property to a friend in a will is better from a tax perspective, while gifting the same property to them in case of death would mean a 15% tax.

Therefore, if you are considering gifting to a person who is not your family member, carefully consider the implications. It may be more appropriate to choose another path (a will, a legacy in a will, or perhaps a transfer of property during your lifetime with some form of settlement). Consult with a lawyer or tax advisor about the tax aspects to avoid unpleasant surprises.

In conclusion: Plan your inheritance with expert help

Succession planning is something worth thinking about in a timely and level-headed manner. The instrument of a gift in case of death is an excellent option for transferring specific property directly to a chosen person and ensuring that everything proceeds according to your wishes. At the same time, however, we see that it is a legally more complex act – it must meet specific conditions and fit appropriately into the overall scenario (in relation to a possible will, heirs, etc.).

Are you unsure how to handle your property in case of death? We would be happy to help you find the optimal solution. Contact our Prague-based law firm for a no-obligation consultation – we will discuss your family and property situation and propose a procedure that will ensure legal certainty for you and your loved ones.

Whether it involves drafting a will, concluding a gift agreement in case of death, an inheritance agreement, or a combination thereof, we will ensure that the documents are valid and enforceable. This will give you peace of mind, knowing that you have done your utmost for your loved ones and that your property will go to those it is intended for, without unnecessary delays and disputes.

Do not leave the fate of your property to chance – contact us today, and together we will plan the future of your assets so that you can look to the future with confidence, for greater peace of mind and certainty for you and your loved ones.