Trust Gifting

[essence]

I've been reading with interest Offsetting rental loss - advantage of not having house in trust? and particularly noted Bean's comments in Post 16

The limit on gifting was still in place.

Maybe I would be better off to get it out as a capital distribution, as now there is no limit on gifting so no advantage in getting in debt to the Trust.

Yes, I agree, the Government has removed the $27K/year per person gifting to a Trust. It was actually costing the Government MORE to administer the Gifting programme than the $'s actually being gifted. Typical.

HOWEVER, I was advised by my accountant to keep continuing with the $27K/year gifting, as as yet nobody has been challenged by the IRD/Government agencies with regard to equity held in a Trust.

I have been told and admittedly have not personally sighted, the application forms for Long Term Care/Government subsidy (whatever it's called) still ask what one's personal assets are and how much gifting have you done in the last year.

This is a grey area between what the Government has said ie a $27/year gifting is cancelled and what Government Departments require you to declare ie Long Term Care.

I don't believe there has yet been a Joe Public case, where JP has had to prove their position with the IRD at Court.

Could a couple of accountants on the forum address this issue please? I'm more than happy to be proven wrong and that everyone is happily gifting left, right and centre legally to their Trusts BUT has anybody looked at this other document?

[speights boy]

Although gift duty was abolished under the Estate and Gift Duties Act in October last year, allowing people to gift all of their assets to a trust in one go, the Social Security Act didn't change.

That means that Work and Income only allows residential-care subsidy applicants to gift $6000 a year for the five years before an application and $27,000 a year in previous years.
That is not averaged out, which means if you gift $270,000 in one sum 10 years before you go into a home, and no more subsequently, only $27,000 of that gift is allowable.

There is a useful factsheet at tinyurl.com/WINZgifting.

www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10805242

[essence]

Thanks for the prompt reply.

One fishhook to be aware of with the subsidy is that the IRD and Work and Income have different ways of assessing assets and income. Gifting all your assets to a trust in one fell swoop will work against you if you want subsidised rest home care. Although gift duty was abolished under the Estate and Gift Duties Act in October last year, allowing people to gift all of their assets to a trust in one go, the Social Security Act didn't change.

That means that Work and Income only allows residential-care subsidy applicants to gift $6000 a year for the five years before an application and $27,000 a year in previous years. That is not averaged out, which means if you gift $270,000 in one sum 10 years before you go into a home, and no more subsequently, only $27,000 of that gift is allowable. There is a useful factsheet at tinyurl.com/WINZgifting.

Work and Income can, in some circumstances, also claw back gifts from family trusts if the trust appears to be a sham.

Exactly what I was told.

People still need to be careful.

[Rosco]

Need to look at risk of non gifting vs possible benefit of rest home subsidy!

1) only around 5-7% of people go into rest homes
2) for me in 50-60 years I don't believe the government will be able to afford rest home subsidies.
3) surely review of Trusts and rest home subsidies over next 10 years will creat new rules where Trust asset are included anyway.

For me Personally I would chose asset protection from full gifting! I set up a Trust to protect my assets and not to avoid rest home fees.

Ross

[essence]

Need to look at risk of non gifting vs possible benefit of rest home subsidy!

1) only around 5-7% of people go into rest homes
2) for me in 50-60 years I don't believe the government will be able to afford rest home subsidies.
3) surely review of Trusts and rest home subsidies over next 10 years will create new rules where Trust asset are included anyway.

For me Personally I would chose asset protection from full gifting! I set up a Trust to protect my assets and not to avoid rest home fees.

My sentiment exactly, Rosco.

[Ivan McIntosh]

I think most if not all lawyers/accountants would know about this, essence. It's all part of reviewing your risk profile....just what are the chances of people going after your money. Most of our investor clients choose to gift it all as soon as possible. We do have clients in (hopefully) stable employment still gifting off the loan at $27k per year, because it makes more sense for them....they'll still finish their gifting in reasonable time.

[essence]

Well, it's the Trust annual gifting time.

However, the following was bought to my notice -

One other thing you need to be aware of is the gifting law which was tested late last year, the courts found that for gifting purposes, couples, whether they have a marital or de facto relationship, are to be treated as a unitary economic units for the purpose of calculation and deprivation of assets. This means that you can only gift up to $27,000 per couple i.e $13,500 per person.

I haven't been made aware of the IRD Case No. on this.

This is a "heads up" for all those Trustees running a Family Trust, who think the rules haven't changed.

My advice? See an accountant!!

[speights boy]

My advice? See an accountant!!

And your insurance broker.

House insurance: a cautionary tale | Stuff.co.nz

Just before last Christmas my insurance company sent a $1250 bill for insuring our house.
In fact, to be accurate, they were insuring the Martin Hawes Family Trust's house - this distinction is important because trustees may have a particular problem with the new way of calculating house insurance.

Trustees are obligated to look after (and properly insure) the assets of a trust, and if they do not, the beneficiaries can demand that trustees make good any losses.
This means that if we had simply accepted the default amount from the insurance company ($693,000) and the house burnt down and cost $1.1 million to rebuild, the trustees could be liable for over $400,000.

This should have trustees thinking hard.

[Perry]

However, the following was bought to my notice -

One other thing you need to be aware of is the gifting law which was tested late last year, the courts found that for gifting purposes, couples, whether they have a marital or de facto relationship, are to be treated as a unitary economic units for the purpose of calculation and deprivation of assets.

A shame this "unitary economic unit" thing doesn't apply to tax law, too.

I can't help but wonder if, despite the much vaunted separation, that the
judiciary have been hinted to that their stipend comes from tax revenue.