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Important points on gifting

Sun, 05 Feb 2012

Much has been written following the abolition of gift duty last year.  There is no doubt that the removal of gift duty will simplify estate planning and can put an end to the yearly gifts to trusts which clients found so tedious.

There are some important points to note however:

  1. There is still the requirement to record the gift in writing.  This is usually done by use of a simple deed of gift.
  2. Creditors' remedies are not affected and any gifts must not be done with the intention of defeating a creditor's interest.
  3. There are separate rules about gifting relating to the residential care regime and the application for rest home care and private hospital subsidies and other means tested benefits.  The  application of these rules and policies by the Ministry of Social Development have not changed and are not affected by the removal of gift duty.
  4. Three statutes contain provisions to allow claw back of gifts in relation to trusts:
  • Insolvency Act – allows the Official Assignee to automatically cancel gifts made within 2 years of the bankruptcy, or within 5 years of the bankruptcy if solvency cannot be demonstrated at the time the gift was made.
  • Property Law Act – the Courts can set aside gifts where it is proven the intention was to prejudice the interests of a creditor.  There is no time limit here.
  • Property (Relationships) Act - again there are provisions to set aside gifts made where the intention was to defeat a spouse's claim.  If this was not the intention (but in reality the effect) the Court can only order compensation.

So gifting off loans or transfer of assets to the family trust should only be done after careful consideration of:

  • the type and purpose of the trust and the nature of assets its holds;
  • the tax implications of transferring assets (eg depreciation clawback); 
  • the personal solvency of the donor; 
  • the need for income from the trust.  In some cases it is better to leave loans in place; 
  • the relationship property situation of the donor; 
  • the position of the donor in relation to the trustees of the trust and control of the trust and its assets.

For many the decision to make a gift is a simple one – for others it is not.  We recommend full consideration of all legal and accounting issues before proceeding.