Gift Duty Update

Gift Duty was abolished on 1 October this year, as promised by the government. What this means for those with family trusts is that they can now gift everything to a trust in one go, without having to go through a gifting programme, gifting at $27,000 every calendar year.  While this sounds very simple, there are issues that need to be considered before making a lump sum gift to your trust:

• Are you insolvent?  If you make a gift to a trust and you are insolvent at the time, then that gift can be clawed back if you are pursued by a creditor in the future.  There are two tests for insolvency – one is if you have less assets than you have debts and the other is if you are not able to meet your debts as they fall due.  Most people will be able to pass at least the second solvency test, but we recommend that you do sign a solvency certificate before doing any gifting, to give evidence you are solvent.

• Do you actually want to gift away all your assets?  There will be circumstances where you still want your trust to owe you some money, so that you can ask for that money to be repaid at some stage in the future. This may be the case if you are not a beneficiary or trustee of your trust.  This is something that we would discuss with you before making a gift. 

• There has been much publicity regarding not being able to get the subsidy if you go into a rest home and have gifted all of your assets to a trust.  The Ministry of Social Development has always had a far reaching discretion to claw back gifts made to trusts, even years before a person goes into a rest home.  The abolition of gift duty doesn’t change this.  However, we do recognise that this is an issue for many people and are happy to talk to you about how you may wish to best structure your affairs in this regard.

It is important that each case is looked at separately when deciding whether to make the “big gift” or not.  Please feel free to contact us today to see whether you should.