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The Professional Trustee Team

Family Trust Gifting: A Gift for you


Hello Everyone (Free gifting promotion has finished)

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 – 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 give you 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 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: |

  • You as the Donor (the person making the gift) will sign a Deed of Partial Forgiveness of Debt and Gift Statements;
  • 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;
  • A copy of the Deed of Partial Forgiveness of Debt and the original Gift Statements are filed with the Inland Revenue Department;
  • The Inland Revenue Department stamps the Gift Statements and returns them to the person who prepared the documents; and
  • 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 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 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.

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 (Free gifting promotion has finished)

To help celebrate my GRA birthday here is our Gift to you:

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. 

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. 

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.


The Professional Trustee Team
© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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