Many people are asking what the implications of the proposed abolition of gift duty to be effective from 1 October 2011 will be. At the moment the Bill has passed its third reading in Parliament and is most likely to become law very soon once Royal Assent has been given. The new law may present a great opportunity for you to complete your gifting program once and for all at minimum costs.
Currently the existing law imposes restrictions on the amount that people can gift. A gifting of more than $27,000 per person per year is subject to gift duty. As a result, once a trust was created, it was common to set up a gifting program which reduced the amount the trust owed to the settlors personally at an amount of $27,000.00 per person per annum.
From 1 October 2011, it is anticipated that gift duty will be abolished and assets will be able to be gifted into the trust in one transaction without the need to worry about gift duty. This means that existing debts owing by a trust to settlors personally can be forgiven in full with one set of documents. However each trust is different and there may be circumstances where it will be appropriate to leave the debt owing.
As the new law also means that you will be able to transfer assets into a Trust and forgive the entire value of the asset transferred without the need for a gifting program and associated costs, it may be a good time to consider whether or not you should form further trusts. Also if your existing trust deed is outdated or otherwise unsatisfactory, this may also be a good chance to think about whether the assets of the existing trust should be resettled on a new trust or transfer other properties and assets to your trust.
Please note that currently there are claw-back regimes in the Property Law Act 2007, the Insolvency Act 2006 and the Social Welfare Act 1964 to prevent people from defrauding creditors, spouses and abusing the social security system by gifting assets to a trust or another person. Some gifts may be ineffective and set aside. It remains to be seen whether new safeguards will be introduced or the existing claw-back regimes strengthened as a result of the proposed abolition of gift duty.
Once the proposed bill has become law, we will give a further update. In the mean time give us a call on 0800 Solicitor if you have any queries.
Tags: abolition, family trust, gift duty, gifting, lawyer, property, sham trust, solicitor, trust, trust deed
