Gift duty was abolished from 1 October 2011 and while the legislative change itself is simple, it has surprisingly complex consequences. The abolition of gift duty has made it possible for individuals to gift assets directly to a trust and it is likely this practice will supplant the former method of selling property to a trust with a gift back.
However, whether or not this is the best option for an individual will be decided on a balance of various factors.
The first decision is whether to gift or not to gift. In deciding whether or not debts owing to individuals from their trusts should be forgiven in part or entirely there are two competing interests:
It should not be assumed that it is always best to forgive the debt owing. The debt is the primary means by which a settlor can have recourse to the trust without relying on the goodwill or agreement of the trustees. When considering whether to gift it will be useful to consider why the trust was settled. For example, if the purpose was to ensure asset protection for future generations, then the fact a large gift may render residential care subsidiary unavailable may be an acceptable price to pay for asset protection.
The above scenarios comprise a non-exhaustive list of the situations in which a forgiveness of debt would not be advised. Alongside this, some clients may feel uncomfortable ceding control of their assets through a forgiveness of debt.
In summary the decision whether to gift or not to gift is a balancing exercise depending on one's individual circumstances. The ability to have recourse to trust assets through retaining the debt must be balanced against the increased protection offered by a settlor not being owed a debt back from their trust.
Whether or not an individual decides to gift assets to a trust, and whether a debt owed by a trust is forgiven, will be a balancing exercise and the factors will be different in each scenario. There is no "one size fits all" solution to this question and it will need to be decided on a case by case basis.
Brandon Cullen | Partner | Albany Office
(09) 966 3609 | bcullen@mcveaghfleming.co.nz
See our Expertise pages
Gift duty was abolished from 1 October 2011 and while the legislative change itself is simple, it has surprisingly complex consequences. The abolition of gift duty has made it possible for individuals to gift assets directly to a trust and it is likely this practice will supplant the former method of selling property to a trust with a gift back.
However, whether or not this is the best option for an individual will be decided on a balance of various factors.
The first decision is whether to gift or not to gift. In deciding whether or not debts owing to individuals from their trusts should be forgiven in part or entirely there are two competing interests:
It should not be assumed that it is always best to forgive the debt owing. The debt is the primary means by which a settlor can have recourse to the trust without relying on the goodwill or agreement of the trustees. When considering whether to gift it will be useful to consider why the trust was settled. For example, if the purpose was to ensure asset protection for future generations, then the fact a large gift may render residential care subsidiary unavailable may be an acceptable price to pay for asset protection.
The above scenarios comprise a non-exhaustive list of the situations in which a forgiveness of debt would not be advised. Alongside this, some clients may feel uncomfortable ceding control of their assets through a forgiveness of debt.
In summary the decision whether to gift or not to gift is a balancing exercise depending on one's individual circumstances. The ability to have recourse to trust assets through retaining the debt must be balanced against the increased protection offered by a settlor not being owed a debt back from their trust.
Whether or not an individual decides to gift assets to a trust, and whether a debt owed by a trust is forgiven, will be a balancing exercise and the factors will be different in each scenario. There is no "one size fits all" solution to this question and it will need to be decided on a case by case basis.
Brandon Cullen | Partner | Albany Office
(09) 966 3609 | bcullen@mcveaghfleming.co.nz
See our Expertise pages
© McVeagh Fleming 2013
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.