Wednesday February 21, 2018


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Any assets, which are transferred to a Trust, must be sold at market value; otherwise the Inland Revenue Department can assess you for gift duty on the difference between the value you allocated at the time of sale and the actual market value.

Gift duty is payable in New Zealand for gifts in excess of $27,000 in any 12-month period.  The rate of duty is payable on a sliding scale commencing at 5% and increasing to 25% if the gifting goes beyond $75,000.  For example, a gift of $100,000 would attract gift duty of $12,850.

As an example, a couple own a home worth $300,000, and it is sold to a Trust.  The Trust does not actually have $300,000. It must borrow the money from the couple (usually the Settlors).  The debt is secured by way of an acknowledgment of debt from the Trustees, to each of them for an amount of $150,000.  In effect the couple exchange their ownership of the home, for a debt of $150,000 owed to each of them by the Trustees.  The result is that the house is then owned by the Trust.

In most situations, the couple would want the debt to be reduced and eventually forgiven altogether.  This is usually achieved by the couple each gifting the amount of $27,000 in each consecutive 12 month period, commencing with the first gift on the initial transfer and sale of the home to the trust.  In the example above, each couple’s debt will reduce:

Year 0 – the debt is reduced to $123,000 ($150,000 - $27,000)

Year 1 – the debt is reduced to $96,000

Year 2 – the debt is reduced to $69,000

Year 3 – the debt is reduced to $42,000

Year 4 – the debt is reduced to $15,000

Year 5 – the debt is nil

From the above example, you can see that forward planning is essential.  The transfer of assets without the payment of gift duty can be a time consuming procedure.


Trustees’ Duties and Obligations

It is important that the Trustees understand what is expected of them, and what are their duties and obligations.  Trustees must have a thorough understanding of their duties, which include;

  • Managing the Trust
  • Making information available to beneficiaries
  • Acting personally (and not delegating)
  • Investing prudently and properly
  • Acting in the best interests of the beneficiaries
  • Being aware and prudent in relation to tax requirements

Currie Lawyers have a system in place to monitor Trust activities and to ensure that the Trust is more effectively and properly managed.  A minute book of all Trustees resolutions is kept.  Critical dates are monitored and new law changes which affect Trusts advised to clients.


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