Family Trusts

Family Trust Gifting: A Gift For You

Janet Xuccoa

Hello Everyone

Well the New Year has well and truly started for us. In Trust Land we’ve conducted hundreds of Annual Trustee Meetings. Out of those ATM’s we found a common issue arose – Family Trust Gifting. So I thought I’d talk a little about Gifting and hopefully remove all the confusion.

Additionally, for those of you who didn’t know, my GRA Birthday is fast approaching. That special day where it all began for me as your Professional Trustee was 29 March 2005. So to celebrate my GRA birthday, we are going to make a Gift ourselves.

Read more about that at the end of this post.

Family Trusts: How to Gift

You cannot simply transfer your assets to the Family Trust. If you did this, the law would deem that you have made a gift and gift duty would be payable. So to avoid gift duty, you need to sell your assets to the Trust at market value.

When you do this, the Trustees will probably not pay you cash for the assets. Rather, they will give you an IOU, which is often referred to as a Deed of Acknowledgment of Debt. This Deed of Acknowledgment of Debt will record that the Trust owes you a particular sum of money for the asset it has just purchased from you.

The balance owed to you by the Trust under the Deed of Acknowledgment of Debt will be an asset in your hands and a liability to the Trust. To reduce down the credit balance owed to you by the Trust under the Deed of Acknowledgment of Debt, you need to gift.

The Trust Gifting Process

Gifting is a process involving you annually forgiving part of the debt owed to you.

At law, you are able to forgive up to $27,000 per person, per year, without incurring gift duty. If you chose to forgive more than this balance, you will be liable to pay gift duty on the amount of the gift you have made over and above this $27,000 threshold.

The gifting process involves five steps: |

1. You as the Donor (the person making the gift) will sign a Deed of Partial Forgiveness of Debt and Gift Statements;
2. The Trustees as Donees (the people accepting the gift) also sign the Deed of Partial Forgiveness of Debt and a Trustee Resolution noting on behalf of the Trust their acceptance of the gift;
3. A copy of the Deed of Partial Forgiveness of Debt and the original Gift Statements are filed with the Inland Revenue Department;
4. The Inland Revenue Department stamps the Gift Statements and returns them to the person who prepared the documents; and
5. The stamped Gift Statements should be filed with the Trust’s papers and the Trustee Resolutions accepting the gift should be filed in the Trust’s Resolution Book.

Some people try to shortcut this process and only have the Donor sign the gifting documents. I think this is a dangerous practice as I believe you should be able to show that a gift has been made and accepted.

Why Gift?

Each time you gift you transfer in more wealth to your Family Trust and you transfer wealth away from yourself. Hence if a creditor attacks you personally and all the assets are in the Trust, those assets should be protected.

This means that should anyone bring a successful legal claim against you, they will not be able to satisfy their judgment against your personal assets as you will not own any assets of significance. Rather, it will be the Trust that will hold all the assets and all the wealth.

Of course having said the above, you cannot transfer assets to the Trust to avoid creditors that are already on the horizon. Additionally, the correct transfer process that I have previously discussed must have been undertaken. Most importantly, the administration of the Trust must have been carried out correctly.

Potential Family Trust Gifting Problems

There are two problems I frequently see in practice. The first involves no gifting and the second involves incorrect gifting.

People often believe that once they have completed their first gift they either don’t have to gift anymore, or that their gifting will happen automatically. They are usually wrong on both counts.

If a credit balance is owed to you by the Trust, you need to keep gifting until that balance is eliminated. You also need to ensure that someone actually completes the gifting process. Often this will be a Professional Trustee.

If you do have a Professional Trustee you should ensure they prepare your gifting documents for you. They may for example think one of your other advisors is taking care of this. They may even forget. Accordingly, your gifting may become overlooked. To avoid this, simply diary out your gifting date and call your Professional Trustee or whoever is completing your gifting documents and prompt them.

Incorrect gifting is the second issue that can arise. This can occur when financial statements are not prepared and financial statement reviews are not completed.

Simply put, what happens when this issue arises is the balance recorded in the Deed of Acknowledgment of Debt that the gifting is based on, is not congruent with the balance noted in the financial statements.

This incongruence arises for different reasons, often because the Trust has given back funds to the Settlors. Accordingly, the credit balance owed to the Settlors is less than that shown in the previous year’s gifting documents.

When financial statements are not prepared and the annual financial statement reviews are not completed, the issue never becomes identified and lays dormant. Identification only occurs when an individual or a Trust is questioned or attacked. That’s when the problem is highlighted and comes home to roost.

Of course this can be avoided if you make sure the Professional Trustee does their job and ensures annual financial statements are prepared and carries out that all important annual financial statement review.

Gifting Summary

I hope the above shines some light on Gifting. As you can see, it’s a really important part of gaining asset protection and has to be completed correctly.

Failing to have your Deeds of Acknowledgment of Debt contain the all important Hawkins and Entrenchment clauses can undo all the good work gifting brings about. Not gifting from the correct balances recorded in financial statements just creates havoc with the gifting programme. Taking short cuts with the preparation of the gifting documents themselves doesn’t pay.

So if you are going to set up a Trust and put assets into it to gain asset protection, take care to correctly complete your Gifting.

Our Gift To You

To help celebrate my GRA birthday here is our Gift to you: (This promotion has now finished).

We invite all clients and prospective clients who do not have their annual gifting documents currently prepared by GRA, to take advantage of this gift.

Let us complete your first years gifting for absolutely nothing. Yes that’s right - completely free of charge. If we do this for you, it could mean you save several hundred dollars. (This promotion has now finished).

As with all offers there are a couple of conditions…

First, your Deeds of Acknowledgment of Debt have to be up to date and in a form acceptable to us. Secondly, we must prepare your gifting documents for the 2011 and 2012 years at our standard fees. By the way, those fees are $200 + GST per person per gift.

Lastly, this offer is only available for a limited time. (This promotion has now finished).

So, don’t look a gift horse in the mouth! Contact me now by email or telephone and take us up on our Gift. By the way, with all the money you are going to save through this Gift, remember to send your Professional Trustee a Birthday Card – she’ll really appreciate it (hint!)

All the best.

Janet Xuccoa  BCom LLB
Professional Trustee Services
Gilligan Rowe + Associates Ltd
Chartered Accountants

Learn more about Janet
Email: jx@gra.co.nz
Ph: +64 9 522 7955

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Family Trusts Gifting

Free Strategy Interview (Limited Time)

Matthew Gilligan

For a limited time, GRA is offering investors and business owners a Free Strategy Interview (normally $199) with me and my team at GRA.

After listening to you explain your situation, we could discuss:

• Structures
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• Family Trusts
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• Financing

…in fact anything on your agenda that might help you to protect and grow your net worth in 2009 .  We’ll also give options and ideas that may end up making and saving you huge amounts of money. 

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You’ll need to be quick so go ahead and scroll down to contact us because this offer is limited by demand and the time available.  We reserve the right to end this promotion at any time.

Matthew Gilligan CA CPP
Director
Gilligan Rowe + Associates Ltd

Free Trust Check-Up

Janet Xuccoa

Got a Family Trust?

Here’s a HOT offer from GRA that will provide you with great peace of mind.

We’ve been helping lots of Kiwis to protect themselves from ‘Sham Trusts’.  Sham Trusts are Trusts which may not (when tested) achieve the goal of the Trusts intended purpose which is protection.

You can read more about Sham Trusts on this website to learn how important it is to have your Trust Checked.

For a limited time, we’re offering our Trust Check-Up service (normally $199) for FREE.  So, having your Trust tested has never been easier.

We’ll provide you  with a written report after we’ve checked the transactions and financial documentation of your Trust.  You need to supply a set of financial accounts.  There are other minor conditions which we can explain when we talk to you.

All you need to do is scroll down and fill in the form below now or call Janet Xuccoa on 09 522 7955.