Family Trusts: IRD to investigate gifting transactions

There are effectively two ways to transfer assets to the trustees of a family trust namely, by way of immediate gift or by way of sale for fair or market value.

To adopt the first approach would, if the gift was in excess of $27,000 (either on its own or cumulatively with gifts within the preceding 12 months) give rise to gift duty under the Gifts and Estate Duties Act 1968.

To avoid this it has been common practise for the settlor(s) to sell their assets to the trustees at their market value and for the trustees to acknowledge their indebtedness to the settlor(s) by way of a Deed of Acknowledgment of Debt. The resulting debt back to the settlor(s) is systematically forgiven at the rate of $27,000 per annum by the settlor.