Giving money without paying tax

[muppet]

Hi Guys

At the present point of time a family member can only gift $25000 per year before attracting tax.

Question: How can a family member give other family members a once only an equal amount of money without having to pay tax on it?
The amount is in the 100s of thousands.

Regards

[roseneath_rat]

Family Trust would be the obvious solution.

Benefactor lends the money to the trust, the trust pays the money to beneficiaries. Benefactor forgives the debt to the trust at the prescribed rate each year, to be totally forgiven on the death of the benefactor.

Best to run it by a conveyancing/property law specialist for the details.

[Taupo Tiger]

Hullo Muppet

One way I have heard of is that the family member with the money gives the other family members an interest free loan payable back on the death of the lender.
Which they will get back when the estate is wound up.

[Gerrard]

Try watching The Shawshank Redemption. Andy Dufrane (?) had an answer but I guess that was only relevent in the US in the 60's

[Dean@Massiveaction]

I've been through this twice with immediate family. Recommended solution by highly paid specialists was to lend the funds from the giver to the recipient with appropriate loan documents showing that no payments were to be made until maturity. Maturity date to be when giver was about 110 years old. Also had Hawkins type clause so that only the lender as a natural person could recall the loan early. Then the givers will forgives the principal and interest in entirety upon their death

[CJ]

Then the givers will forgives the principal and interest in entirety upon their death

This could have the result of some hilarious will readings if the deceased had a sick sense of humour and changed their will(ie. requiring the loan to be repaid to his new bimbo "nurse").

Otherwise sounds feasiable and a lot easier than a trust.

Note: gift amount is $27k and if married, it is $54k (ie. 2x)

[spaceman]

Sounds too simple

I'm not saying that it 'ain't so .....just that it sounds a bit simple.

Lending the money to a relative and then forgiving the debt upon death sounds sensible.

But it's such a simple and obvious way around the gift duty..... that the worry-wart in me asks if it can really be that simple ..... I know the government can be dumb, but are they that stupid to miss such an obvious loop-hole?

Cheers
Spaceman

[MJU]

If you can keep a straight face here a wonderful line...

"Death is a wonderful gifting opportunity"

The other aspect to consider is the relationship property, and making sure you choose to pass on money to your children's spouses!

[roseneath_rat]

The reason I recommend a trust is because I believe the gifting restrictions are on the giftor, not the giftee. IE- $27K per year in total, not per person.

The administration to keep track of multiple loans to multiple family members would be tiresome to stay on the right side of the IRD if it turns to custard. Through the trust the family never have to know!

[Perry]

I've been through this twice with immediate family.
Recommended solution by highly paid specialists was
to lend the funds from the giver to the recipient with
appropriate loan documents showing that no payments
were to be made until maturity. Maturity date to be
when giver was about 110 years old. Also had Hawkins
type clause so that only the lender as a natural person
could recall the loan early. Then the givers will forgives
the principal and interest in entirety upon their death.

Question:
Would the forgiveness at death (by the deceased estate)
not be subject to the same gift tax regime as if it was
gifted by the testator prior to death?

I also wonder about a loan provision regarding refreshing
the loan, as a claw-back against bankruptcy?

Like spacemen, I have some niggling doubts.

[roseneath_rat]

No, thankfully with death tax at 0% the funds gifted (or debt forgiven) at the demise of the benefactor are tax free.

I'm not sure I follow you on the bankruptcy side of things. Are you wondering about what happens if the benefactor goes bankrupt, and the receivers call on the loan as an 'asset'?

[IRD]

Watching.....Waiting

[SuperDad]

Watching.....Waiting

For what???

[roseneath_rat]

I'm not saying that it 'ain't so .....just that it sounds a bit simple.

Lending the money to a relative and then forgiving the debt upon death sounds sensible.

But it's such a simple and obvious way around the gift duty..... that the worry-wart in me asks if it can really be that simple ..... I know the government can be dumb, but are they that stupid to miss such an obvious loop-hole?

Its perfectly legitimate, and has been around for a long time. This is the way that most people transfer their home into their family trust.

It may take 10 years to transfer the full value of the property in, but once its there its protected. The earlier you start the lower the property value to transfer, and thus a shorter period of time to transfer the full value.

[GJB68]

If the money has come from a lotto win? Put Muppet Syndicate on the back and people who you are trying to give money to can get money tax free as they were part of your syndicate....