Gift duty change to end the prenup

[essence]

06/02/2011

Prenuptial contracts, which are already in decline, look set to disappear when the National Party does away with gift duty, a move seen by many as one of the biggest changes in property rights in New Zealand history.

Gift duty looks set to go by October 1, allowing anyone to freely gift any amount of assets to another person or into a family trust. That will create a new wave of trust establishment – especially now opposition parties like Labour and the Greens have stated their desire to hike taxes for some sections of the population – but it will also allow many who are currently gifting their assets, and putting them beyond the reach of future creditors, to transfer all the rest of their assets into trust at a stroke.

Lawyers say the abolition of gift duty, which Labour MP David Cunliffe dubbed a National Party policy for the "plutocrats of Remuera", will have the effect of undermining other legislation.

Because it will be so easy to gift assets into trusts, lawyers say, the Family Court will increasingly find itself with no assets to share out between separating couples, undermining the Property Relationships Act.

"If gift duty goes, there will be no doubt about what will happen. Certainly in the family protection context, there is not going to be anything to make a claim on," Auckland lawyer Greg Kelly said.

]"The effect is the 50/50 provision of the Property Relationships Act are being undermined by the establishment of trusts."

http://www.stuff.co.nz/business/4622...end-the-prenup

Bold and underlining emphasis is mine.

[Davo36]

Well all seems good for those of us not in a relationship breakdown.

Can just gift everything to the trust, wahoo!

[essence]

Yeah, I'm thinking I can't see a problem for me. Just allows me to complete gifting asap.

However, as the article stated, there are Property Relationship issues that needs to be sorted.

People can be incredibly naive/stupid with the documents they sign. I know of a case where husband put papers in front of (then) wife and said "You need to sign these". She did.

He's now left her and taken everything and because she's WILLINGLY signed the papers, it looks like she'll get absolutely fricking nothing.

The only people who will win out of this situation is the lawyers.

How much/far do the legislators legislate?? (Rhetorical question)

Sometimes people are their own worst enemies.

[CJ]

People can be incredibly naive/stupid with the documents they sign. I know of a case where husband put papers in front of (then) wife and said "You need to sign these". She did.

He's now left her and taken everything and because she's WILLINGLY signed the papers, it looks like she'll get absolutely fricking nothing.

Wouldn't work anymore, you need independent legal advice or the agreement is void.

I am pretty sure where trusts are involved, courts dont break the trust but they can give a disproportionate share of the relationship property to the spouse who hasn't shifted money into a trust.

I am sure this isn't new though, I have a pre and post marriage trust.

[Propoholic]

I am pretty sure where trusts are involved, courts dont break the trust but they can give a disproportionate share of the relationship property to the spouse who hasn't shifted money into a trust.

I'm sure a lot of this is related to courts looking for sham trusts and legitimately identifying situations where trust is not above board ie family personal expenses intemingled with trust etc etc.

[CJ]

I dont follow this area closely so you may be right. Though I though 'sham trusts' was a way to break the trust completely. To be classed a sham, you have to be doing something wrong - just because it is a badly run trust (ie no annual meetings or resolutions) is not enough. Keep personal expenses and income out of the trust and you should be fine.

[Tan]

The only people who will win out of this situation is the lawyers.

I think the reason they are fighting it is they loose their annual $800 or so for gifting (something I can do in 5 minutes). Perhaps they will perk up when they realise the new options to charge.

I understand trusts will become easier to break once gifting is changed. As it stands now there is a 5 year (?) period before money become locked into a trust. As we have seen with some of the large collapsed companies - Bluechip may have been one, haven't really been taking notice - trusts are already being broken in extreme circumstances.

I have also heard that if you are being supported either financially or otherwise (work done to buildings in the trust etc) while you grow your trust, the supporter may become entitled to some of the contents.

As long as it doesn't happen to me...

[Perry]

Some lawyers already say judges are ruling contrary
to the will of parliament and the common law of equity.

My lawyer says much the same. Too many judges -
he says the Family Kangaroo Kourt Krowd are the
worst - are simply 'taking the law into their own
hands.' He said that made his job difficult, because
he used to be able to advise a client that such-and-
such a course of action was proper and lawful, and
would have a predictable outcome, pursuant to the
law. He said that he cannot do that, any longer, in
the face of so much judicial lawlessness.

. . .but it will also allow many who are currently gifting
their assets, and putting them beyond the reach of
future creditors, to transfer all the rest of their assets
into trust at a stroke.

I have some doubts about an unqualified statement
of that nature. Timing is everything and critical.

My understanding is that there are a wide range of
claw-back provisions. Further, that the government
sought a lot of departmental policy advice before
doing away with gift duty, about claw-back and
look-through options.

[essence]

In the Best case scenario when gifting has been done is a regular and legal way, to be able to gift the balance (large or small) to the Trust in one lump sum would be a good thing.

Saves on the tedious yearly gifting process.

Yes, there are the complications when all assets are in the Trust if the relationship breaks up. What happens to the assets?? How are they divided? Who gets to keep the dog?? etc etc etc

THAT'S when the lawyers make their money.

[TheLiberalLeft]

This change sounds suspiciously contradictory to the recent articles where sections of the Govt complain about the overuse of trusts by NZers for reasons other than those originally intended. A cynic would suggest that these changes are the sweetener to the other side of the coin that may well make trusts redundant and worthless vehicles.

[One]

This brings me to a question I'd appreciate advice on.

I know someone with a family trust that I suspect looks like a sham. The trust owned the family home, sold that property a couple of years ago, and has just finished building a new family home. The sales proceeds weren't enough to cover the new home, so my friend just paid for the extra. As far as I know, there was no documentation of new lending to the trust or any other such thing.

Am I right that this makes the trust look suspect?

If so, is there any way to recover the situation?

And how the heck would she keep finances separate anyway? Does she have to have a separate account for the trust and loan it money for rates, maintenance etc? If so, how will this work under the new regime with no annual gifting limit? Can she gift a lump sum to cover several years of costs?

Advice greatly appreciated - my friend cares about this trust and would be horrified if she's screwed it up.

[Ivan McIntosh]

While I haven't seen all your friends paperwork or details, my initial thoughts are that your friend should treat it as either a loan to the trust or shared equity in the house (loan would be preferable), and it should be documented.....better late than never.

Don't know enough about it to say whether it makes the trust look suspect, but as things are it certainly opens the way for a claim against the house by a creditor of your friend.

Most family trusts, certainly the ones we do, operate under an agreement between the trust and the people living in the house that they may do so free of rent on the basis that they pay the mortgage and all expenses, and maintain the property etc etc. In that manner things are kept separate.

If you want to loan or gift a lump sum then that is perfectly possible now...a loan to any amount, and gift to $27k p.a. per adult gifter. After 1 October you can lend then gift as much as you please, subject to clawback rules including solvency requirements.

Regards
Ivan

[One]

Many thanks!

[flyernzl]

The only people who will win out of this situation is the lawyers.

That's the whole point, surely?

The Lawyers in Parliament bring in these laws so that the Lawyers not in Parliament have plenty to do and can charge high fees for doing it.

Nothing to do with Joe/Jane Public at all (apart from paying the fees).

[Ivan McIntosh]

Oh, yawn

None of us minded stamp duty disappearing, and I think most of us feel the same way about gift duty. But by all means, lobby Parliament to keep paying it

Tongue-in-cheek regards
Ivan